It is important to expose the mythology that passes for economic
analysis at this time. Six myths come immediately to mind and
are worth examining, as they lie at the heart of the current problem.
1. Wage reductions create more jobs.
Indeed, more young people would be offered jobs if the 'youth
wage' were set at $4.50 per hour, as the Liberals have previously
suggested, but it would most likely be at the expense of the jobs
of other more highly paid workers. How low can we go with wages
anyway? And at what social cost? Do we want to emulate the USA
where labour market 'flexibility' and wage-cutting has produced
a massive class of the 'working poor', only a step above an extensive
'underclass' which threatens social cohesion and personal security?
Would this wage-cutting strategy simply shift the burden from
employers to the state?
2. Balanced budgets are necessary to deal with the nation's
Balanced budgets have the aura of good housekeeping. But, as Keynes
argued, fiscal policies can have a more creative role in eliminating
economic cycles, generating employment and building the infrastructure
needed for economic success. To relinquish such a creative role
is to substitute a narrow accountants viewpoint for an economists
3. Government expenditure cuts create employment.
Obviously when the government cuts spending, public servants lose
their jobs -- the Liberal's plan for government cuts will see
an estimated 9,000 direct job losses. The negative impacts of
that flow onto the private sector, because of the lower spending
on goods and services by those who have lost jobs. Furthermore,
the evidence suggests that government spending, on infrastructure
for example, actually creates the preconditions necessary for
private sector investment, and private sector jobs.
4. Increased savings are the key to improved economic outcomes.
It is investment by businesses in new capital goods, not savings
by households, that drives output income and employment. On this
reasoning, the task is to get investment up, then savings will
follow. In Australia, productive investment has remained disappointingly
low. A push to raise savings by itself can do more harm than good
to employment levels. We need to ensure that savings are more
effectively mobilised to finance investment in Australian industry.
5. Tariff cuts will help create jobs.
The shared belief is that exposing Australian industry to international
competition will enhance economic efficiency, as resources 'shaken
out' from uncompetitive firms are more usefully deployed elsewhere.
So the theory runs. In practice we've had all the downside --
with major job losses in industries manufacturing textiles, clothing,
footwear and cars, and more to come -- but very little of the
Resources evidently do not flow freely to new productive industries
as the textbook theories assume. Building new industries requires
more interventionist policies, involving co-operation between
business, unions, financial institutions and government. Such
industries don't emerge spontaneously on a 'level playing field'.
A more appropriate metaphor for the present situation would seem
to be 'scorched earth policy'.
6. Increased economic inequality creates incentives for improved
The pursuit of 'economic rationalist' policies has gone hand-in-hand
with increased inequality -- a polarisation of rich and poor.
What has kept the tendency to growing inequality in check historically
has been trade unions and the redistributive role of government.
As these institutions are pared back, the inegalitarian character
of the economy is given free rein. In practice, countries with
a more egalitarian distribution of income, like Japan, have fared
better. Their people have certainly fared better.
We are asked to accept as necessary, if not desirable, a growing
gulf between executive salaries and the wealth of corporate high
fliers on the one hand, and the incomes of the bulk of the people
on the other. This assumes different motivational postulates for
the rich and the poor -- that the rich will work harder when their
incomes are raised and the poor will work harder when their incomes
We in Australia are ideally placed to show that a balance between
economic, social and environmental goals is possible. After all,
this is what international visitors to this country commonly comment
on: it is the basis for a genuine comparative advantage.