Spend it wisely: Some reflections on the Global Financial Crisis
by Mark ParnellGreens MLC, South Australia
One thing that has struck me about responses to the Global Financial Crisis (GFC), is that mainstream commentators are increasingly differentiating the “Real Economy” from the “Financial Economy”. The real economy makes real things and provides real services to real people. On the other hand, the financial economy of stock market reports, exchange rates and pork-belly futures often resembles a fairyland of bizarre concepts that defy logic, physics, the natural environment and even gravity.
We all know how good wars and disasters are for the financial economy. The Exxon Valdez oil spill did remarkable things for the Alaskan economy. Despite, its immense impact on the community and the natural environment, the dollar value of destruction and waste has equal billing in the GDP with education and health. Provided the numbers keep going up, all is well, regardless of the consequences for people and the planet. That's the financial economy.
For many, the GFC is a great opportunity to discuss alternative ways of measuring or valuing human activity. However, whether you are a traditional economist who subscribes to the need for continual growth in GDP, or whether you are a fan of the Genuine Progress Indicator or it's variants, when the real economy slows to the point where people lose the ability to engage in meaningful work or their incomes drop to below the poverty line, then governments need to act. They need to correct market failures and get economic activity moving again.
An irony not lost on many is that the calls for intervention come loudest from those whose normal mantra is for government to “get out of the way” of the free market. Richard Heinberg of the Post Carbon Institute puts it like this:
“In the months ahead we will see a titanic battle over who can restore the beatific condition of perpetual growth. Sadly, neither free marketers nor state controllers have the answer. Humanity has reached physical limits to growth — peak oil and climate change — that spell ruin to all economic philosophies that fail to take such limits into account.
How long will it take the theoreticians to figure this out? How much of our remaining wealth will they destroy in a futile attempt to prove their paradigms eternally true? How far will society unravel before someone in charge begins to question the received wisdom?”
Enter the “Stimulus Package”. The first thing that strikes you about these types of packages, which are being introduced by Governments all over the world, is that the numbers are huge. In single announcements, governments are spending billions and trillions of dollars to encourage production, trade and consumption of goods and services. Another irony is that the worse things get, the bigger the spending spree. Infrastructure projects that we were told were too expensive in good times, become instantly affordable when it looks like we can least afford it.
In Australia, the largest injection of public funds so far in response to the GFC is a proposed $42 Billion package of handouts and infrastructure spending, most of it borrowed. At the time of writing, the package is still being scrutinised by the Senate, which refused the government's request to rubber stamp the necessary Bills in Parliament virtually within a day of introduction.
It is said that only a courageous politician would stand between voters and a cash handout. Nevertheless, the Senate is doing what they were elected to do, that is, to scrutinise and where necessary, amend government legislation.
It is remarkable that the Government would expect the Senate to pass such far-reaching measures without effective debate. Certainly the 80/20 rule is alive and well in most Parliaments. We sweat the small stuff all the time, but monumental decisions often receive scant attention. But on this occasion, the Senate did rise to the challenge. Already we are seeing a clear distinction between the short term thinkers (who just want hand-outs or preferably tax cuts) and those who see the stimulus package as a golden opportunity to transform our economy onto a more sustainable footing.
There is certainly debate around the size of the package. When dealing with such large numbers, the margin for error is huge and forecast outcomes are based on guesswork and presumptions more than science. Will cash handouts to individuals put food on the table, imported energy-hungry plasma TVs in the lounge room or go straight into the pokies, savings accounts or off the mortgage? Who knows?
Surprisingly, there is even less consensus about what we are trying to achieve. Is it just about preventing short-term unemployment or are there bigger issues at stake? Greens Senator Bob Brown posed a key question on the first day of the debate in Parliament: “How do we inject optimism into a nation which in economic terms is feeling pessimistic about the future?” Bob suggests that we ask the next generation, our kids, who recognise more clearly than many adults the dire threats coming down the line from overpopulation, resource depletion and cataclysmic climate change.
Sitting on the red leather benches of the South Australian Parliament, I still sometimes wonder whether or not a group of 13 year olds might be able to make better decisions than the current generation of leaders. Certainly they would lack sophistication, but I reckon the key principles would be taken more seriously and they'd be less paralysed by devotion to vested commercial interests. After all, a handful of these young Australians will even see in the twenty-second century! The proposed education spending in the stimulus package s both necessary and timely. Despite Australians being amongst the wealthiest of the world's citizens, we have neglected our education system for far too long. When Rupert Murdoch is lined up on this issue alongside unions and business leaders, you can be pretty sure that spending on schools will have broad support.
Conservationists have often drawn parallels between the nature of the climate change emergency and the threat of invasion faced by Australia in the Second World War. Seventy years ago, our parents and grandparents transformed the Australian economy onto a war footing almost overnight. Making munitions and supplying our troops took priority over more peaceful pursuits. However our response to climate change has been one of denial followed by inaction. Sir Nicholas Stern pointed out that we should redirect one per cent of gross international product into tackling climate change now in order to avoid a six to 20 per cent hit on the economies of our grandchildren. In the United States, the Obama administration has proposed a US$50 billion green stimulus package to 'create jobs with clean, efficient American energy' So, how does the current Australian stimulus package match that challenge? Not very well. Certainly there is merit in the government's plan to insulate and retrofit houses for energy efficiency, but aside from this initiative, it's business as usual. Roads will take priority over public transport and cycleways. Energy from coal will be propped up at the expense of renewables.
We know that often in government, one hand doesn't know what the other is doing. Will the people charged with fixing up our schools talk to the people responsible for the insulation and energy efficiency projects? Will either of those groups talk to educators tackling the skills shortage across a range of trades? And will any of them talk to the 13 year olds about what the future will need to look like at the end of this century and into the next? As a kid growing up in Melbourne, the view across the valley from my lounge room window was of a large factory. Accordingly to my dad, during the war it made tanks. In the 50s and 60s it made concrete pre-fabricated houses for the Housing Trust. Now it's a TAFE college. The transition may have been slow, but change is possible. The Greens say it is essential and the only better time to start than now, was yesterday.
Source: Australian Options, Issue 56, Autumn 2009, pp. 6-7.