Interesting article regarding economic management and recessions in Australia going back to Menzies
Blows out of the water the baseless view of some that some how one side of politics are better economic managers.
Though those same people will probably be to blinded by their political bias to accept facts in this article
Hawke? Menzies? Howard? Rudd? Who's best at running the economy?
While Prime Minister Kevin Rudd is throwing everything at the Australian economy to stop it heading into recession, it begs the question just how well have governments performed over the years when managing the economy.
Since World War II, the Liberal Party has been in power for 44 years compared with Labor's 17 years. During that time Australia has experienced a number of recessions. The first post-war credit squeeze was in 1960-61 when Robert Menzies' Liberal government was in power.
The economy had become overheated in the post-war years leading to high inflation. The slow reaction of the government caused the credit squeeze. The next economic crisis emerged in the wake of the hike in world oil prices in the early 1970s when Gough Whitlam's Labor government was in power, when he put a squeeze on credit to curb inflation.
This was followed by another recession under Liberal leader Malcolm Fraser in 1982-83 when interest rates were high, commodity prices plunged and the deficit was on the rise. The last recession, to date, was under Hawke in 1990-91 — the infamous recession "we had to have".
Like to use the technical definition of a recession, there have been more recessions under Liberal governments than Labor
If you use the definition of a recession as being two successive quarters of negative growth, then strictly speaking there were two other recessions in 1966 and 1971, both under Liberal leadership.
It is still widely debated whether Australia will escape a recession in the current global financial meltdown.
How much are these recessions due to external factors and how much to the actual economic management of the various governments? And does the political party make a difference? Labor has often been tagged with the label of "poor economic managers" by their political rivals, but is this in fact the case?
Selwyn Cornish of the School of Economics at the Australian National University, for instance, believes the most impressive in terms of economic management was the Hawke government from 1983 to 1991 and the worst the preceding Fraser government when John Howard was Treasurer, although he concedes it was not all Howard's fault.
"The worst post-war recession was under Howard [as Treasurer] and then Hawke came in with a massive budget deficit which they then had to correct," Cornish says. "Hawke and Keating floated the dollar and deregulated the banking system. It was very impressive as times were not good and yet they did some good things. Hawke went against traditional Labor economic ideology," he says. "Fraser and Howard [in the previous government] had had the same opportunity but didn't do anything," Cornish says. "They may have commissioned the Campbell Report [a review of the Australian financial system commissioned in 1979] but then they didn't act on it."
Dr Nick Economou's view on how governments have managed the economy says historically it is a combination of external factors that are then made worse partly through misguided policies.
"Quite often economic events are external as we are a small export-oriented country," Monash University's Dr Economou says. "Government is merely responding to the environment. It is not managing the economy at all, rather it's being reactive and quite often that reaction may exacerbate the problem."
ANZ chief economist Saul Eslake meanwhile takes the view that governments are responsible for the policies that then set up the conditions that lead to a recession.
"In the '60s, '70s, '80s and '90s, successive governments relaxed economic policy too much and allowed excessive growth in domestic demand which helped fuel a wages explosion," Eslake says.
Associate professor Evan Jones of the University of Sydney believes much of the problem rests with politicians' advisers rather than the elected members of the respective parties.
"There are people who try hard in all governments but they are often people who are ill informed on a portfolio who then take advice from the experts … And those experts have become more technocratic and more dogmatic since deregulation occurred 25 years ago. And now lateral thinking and pragmatism are a thing of the past," Dr Jones says.
"As a result I place a lot of the blame on the lack of historical memory of key economic bureaucrats. Governments are constrained by the narrowness of advice and nobody has the courage to take a stand," he says.
By way of example of the influence of the bureaucrats in Treasury and the Reserve Bank, Dr Jones points to the recession of the early 1990s.
"If the Coalition had been in office, they would have done nothing different as Keating was only following the advice of the economic bureaucrats in Treasury and at the Reserve Bank," he says."
Professor Sinclair Davidson of RMIT is of the view that either side of government tends to be equally good or bad, saying it is the nature of the people who get elected into power.
With the exception of Gough Whitlam, Davidson says people who get elected "tend to be reasonably similar in their outlook and what they are doing". His view of the 1970s recession was that it was caused by the oil price crisis which was then exacerbated by the government reacting badly.
The blame for the late 1980s/early 1990s recession is placed on a policy error by the Reserve Bank that upped interest rates to a peak of more than 17 percent. The 17 years of growth, largely under Howard as prime minister with Costello as his treasurer, was not so much to do with good economic management as it was with the wellbeing of world economies.
ANU's Cornish says we may have had 17 years of expansion but so did many other countries.
Whether Kevin Rudd handles the current economic crisis well is yet to be seen. There has been some criticism of the $10 billion spending package he is giving to low-income earners just before Christmas.
RMIT's Professor Davidson cites secretary to the Treasury Dr Ken Henry as saying you have to think about the three Ps of participation, productivity and population when creating policy and the $10 billion handout does nothing for any of these. Professor Davidson says this is bad spending and, according to the logic of Reserve Bank governor Glenn Stevens, bad spending is bad spending regardless of the prevailing economy. Consequently if it were bad spending last year then it remains bad spending this year.
However, the general consensus appears to be that much of what Rudd is doing is on track and he is certainly being very vocal about his involvement in the global financial crisis.
The question is will he go down in history as a good economic manager alongside the duo of Hawke and Keating or will he be seen as a failure?
