Thursday, November 15, 2007

Ozonomics, by Andrew Charlton

Ozonomics aims to demystify much of the white noise we hear in the media on the subject of the economy. If you're like me price fluctuations, trade imbalances and the finer points of interest rate movements register zero effect on the intelligence.

Author Andrew Charlton does a wonderful job of breaking down the essentials of the economy into a clear and simple language, providing instructive examples and 'cartoon economies' in which to get big concepts across to reluctant readers.

With good doses of wit thrown in, Andrew Charlton has written an easy to read guide that deserves a wide readership. After all, we spend most of our lives contributing to the economy through our work and spending habits, and we elect leaders to manage it. We should have a clear picture of how it all really works, what’s important economic news and what’s mere fluff.

Andrew Charlton has an impressive CV for a 28 year old. He’s worked with Nobel Prize winner Joseph Stiglitz, with whom he co-wrote Fair Trade For All: How Trade Can Promote Development, and holds a doctorate from Oxford University. For kicks he enjoys the acerbic wit of Oscar Wilde, Patrick White and Maureen Dowd.

Not content with these achievements, he decided to demolish what he thinks is the myth that the Liberals are better economic managers.

John Howard and Peter Costello have for the past ten years presented themselves as the undisputed masters of the Australian economy, delivering growth galore and wealth never dreamt of.

Andrew Charlton argues that their constant trumpeting of this line has been so effective that everyone – media and electorate – take it for gospel truth. Making matters worse has been the Labor party itself. Cowed by such tactics, they haven't been able to stand up and proudly claim Labor's impressive economic legacy: the major structural reforms under the Hawke and Keating governments.

The culmination of Labor’s poor economic argument came under Mark Latham's leadership, where he signed a blackboard sized poster which comprised of three economic policy promises: keeping the budget in surplus; reducing Commonwealth expenditure and revenue as a proportion of GDP; and reducing taxation. This was the 'Labor low interest rate guarantee.' The worst part of this act was not so much its silliness. The Reserve Bank, as we all know, ultimately makes decisions on interest rates. What was worse, in Charlton's view, was that it legitimised 'Howardonomics'.

'Latham might as well have been signing a massive 'congratulations' card to celebrate the forthcoming Howard victory. In one desperate gesture he had essentially told the Australian people that 'Howardonomics' was legit, that all the bogus links the Coalition had been making between deficits and interest rates were correct, that the Labor Party had a lot to apologise for from their last government, and that the only way for them to be accepted back in the political mainstream was to confess their sins and promise never to re-offend.'

Ozonomics is basically divided into two parts. The first part describes what Charlton thinks of as the three most important aspects of the economy. They are productivity, jobs and equality. It's important that we increase our productivity, create innovative businesses that create jobs, and strive to narrow the gap between rich and poor. While the state will always have a major role to play in providing welfare to those in need, communities should also play a more prominent role. While people may resent their taxes being re-distributed through the prism of government bureaucracy, humans are naturally philanthropic when faced with their fellows in distress.

Charlton unequivocally sees free markets as being responsible for our current prosperity. Had not our tariff protections been removed and our economy opened to competition, we’d be a much poorer nation. Those on the left calling for a return to the days of protected industries are living in a dream. Charlton calls them 'sandbaggers', desperately trying to sandbag Australia against the millions of Chinese each year marching off from their villages and into manufacturing jobs. This phenomenon we simply can't compete against. What we can do though is invest in education, become an innovative nation and secure for ourselves a better future. We have to become a clever, creative nation, and stop thinking that we can forever just dig up coal and sell it.

In politics, we must also do away with the exhausted discourse of left versus right, especially when the policies of the left and right parties often meet up in calling for old fashioned protection of Australian manufacturing industries. It's obvious that it has become increasingly difficult to explain what being left or right wing means in today’s politics.

Charlton helpfully gives us three political categories to define current political thinking. There are the popular nationalists, the neo-conservatives and the progressive globalists. The last group Charlton describes in detail.

'The progressive globalists would comprise those people who believe that markets can be a powerful force for good, but that they are not perfect and need governments, unions and social institutions to correct market failures and support equality of opportunity. The distinctive economic philosophy of the progressive globalists would centre on widely distributed prosperity, economic security, sustainability and well being. All of these are the objectives which could be achieved through the combination of well-functioning markets and effective institutions.'

When faced with a choice between the closed door policies of popular nationalists, and the 'sink or swim' in the turbulent waters of global capital attitude of the neo-conservatives, Charlton sees the progressive globalists as having the most compelling program for the nation's future. This would not involve protecting citizens from the outside world, but in giving them the tools and education to prosper in a globalised world.

'It means combining the power of the market place to unleash incentives with the coordinating role of the state to equip people with the skills to innovate, invest and work smarter, in order to provide a better future for themselves and their children.'

Part two of Ozonomics goes on to demolish what the author describes as ‘Howardonomics’. This may make the book sound like it's a partisan argument written to try and tear down the credibility of the Howard government. (It should be noted that the book was launched by Kevin Rudd). Charlton afterall does give most of the credit for the booming Howard years to the reforms implemented by Hawke and Keating. The tone of the book however is more of a need for Australians to know how their economy really works, and to enable voters to make a more informed choice when looking at the Howard government's argument that it is better able to manage the economy than Labor.

In essence, Charlton argues that Howard and Costello have been 'coasting'. Page 125 provides a very illuminating table contrasting the reforms of the Hawke-Keating years against those of the Howard-Costello years. Howard and Costello's big reforms, in the author's opinion, pale into insignificance when put against the Hawke-Keating record. The GST's positive effects on the economy have been overstated, and WorkChoices has simply involved a transfer of money from employee to employer.

Other Howard economic shibboleths are dealt with, such as budget surpluses and the belief that national debt is a bad thing. The best example to illustrate the phoniness of the Howard economic mantra is an interview conducted on ABC's Lateline by Tony Jones. Remember the debt truck of late 1995 that Peter Costello launched from oppostion? Here is Howard in February 1996:

'We now owe the rest of the world $180 billion. Nothing, my friends, symbolises absolutely and comprehensively more than that disgraceful figure the total failure of Labor's economic management over the last 13 years.'

Yet today foreign debt is a staggering $522 billion and rising. How can this be when contrasted again Howard’s words in 1996. Either he wasn’t serious to begin with, or is completely incompetent. The interview with Tony Jones is worth quoting at length, as it demonstrates the huge gulf between Howard’s rhetoric and his action.

‘TONY JONES: Mr Howard, you've made that point repeatedly, but when youhad that debt truck, you called it the foreign debt truck.The figure on the side of it was $194 billion - a very scary figure, Ithink you'd agree.Do you know what that figure is now?

JOHN HOWARD: I don't dispute that's a different figure or that there'sa higher figure.

TONY JONES: It's a higher figure, $393 billion.It's doubled, in fact, under your Government?

JOHN HOWARD: Tony, I don't dispute that.And I simply make the point that the capacity of the Australianeconomy to service that foreign debt and the fact that we've taken outof that debt a Government contribution, I mean, you don't want toconfuse foreign debt, which is a combination potentially of bothpublic and private sector indebtedness, and the national debt, which,of course, is the accumulated Government debt, which is the product ofrunning successive Budget deficits.I think it's very important to point this out.And it's very important to make the point that we inherited 96 andwe've reduced that by $70 billion.

TONY JONES: But this is the pledge you made in September of 1995 - "Ican promise you we will follow policies "which will bring down theforeign debt."Now why didn't you keep that key economic promise?

JOHN HOWARD: Well, Tony, I won't argue with you as to what I preciselysaid, although I haven't checked the exact words, but what I will sayin reply to that is that when you're making a judgment on a governmentand on an individual, you look at the totality of that government'sperformance.If you're trying to suggest that this Government hasn't presided overa strongly growing, low inflationary, low interest rate economy -

TONY JONES: I'm asking you specifically about the promise you made in '95.Why make the promise in the first place if you're not going to keep it?

JOHN HOWARD: Tony, I'm not avoiding that.'

Andrew Charlton’s voice can be added to a growing list of writers and thinkers who are providing a way out of the dead end of left versus right politics. His program suggests we embrace globalism, put a high premium on education, maintain good wages and conditions for our workers (yes, that means supporting the unions) and keep markets out of areas that are better co-ordinated by the state. Common sense, not ideology, should prevail.

His analysis of the Howard years of economic management demands we scrutinise the blatant contradictions and clear nonsense of ‘Howardonomics’. This is not an argument pitched to heap calumny on Howard and Costello. Charlton’s point is that in a rapidly changing world with its constant challenges, it’s critical that we have a clear and honest understanding of how our economy really works. Our future depends on it.

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