Wayne Swan on the blindness of affluence

Wayne Swan writes about The blindness of affluence and the need for a more inclusive form of prosperity.

Has neoliberal capitalism had its day?

In Developed economies are not suffering from the consequences of a financial crash, but from a structural crisis of neoliberal capitalism, an extract from his book, David M. Kotz writes that the current global economic slowdown in developed economies is due to a structural crisis of the "neoliberal form of capitalism".

What explains the current malaise in developed economies across the world? In my book, The Rise and Fall of Neoliberal Capitalism, I analyse the roots of the economic crisis that began in 2008 and the free-market, or ‘neoliberal’, form of capitalism from which the crisis emerged. I argue that the stubborn stagnation afflicting many of the developed economies cannot be understood simply as the fallout of a severe financial crash or as an unusually severe ‘Great Recession’, but instead is a structural crisis of the neoliberal form of capitalism. This means that the continuing stagnation cannot be resolved by policy measures alone within the constraints of neoliberal capitalism. Rather, a resolution requires major institutional restructuring.

...

I argue that both theoretical considerations and historical precedents indicate that the neoliberal form of capitalism can no longer give rise to sustained economic growth. The stagnation will put increasing pressure on all the affected groups in society to find an alternative route to resuming normal economic growth. I suggest that a return to a statist economy is the likely outcome, although that can take different forms, ranging from a right-wing nationalist version to a new round of social democracy or even a shift away from capitalism toward socialism. While the neoliberal form of capitalism is unlikely to survive, which statist form will replace it cannot be predicted in advance and will depend on the outcome of economic and political battles among various groups and classes in the coming years.

How the government spent our boom

In How the Budget was mugged (Treasury publishes the photo) Peter Davidson has a great graph, taken from a speech by the Treasury Secretary John Fraser, showing the impact of our unexpected revenue windfalls, spending decisions and tax cuts on the federal budget:

The following chart, included in his slides, shows how the windfall revenue gains from the boom between 2002 to 2008 (grey bars, circled by me) were spent (green, blue and red bars).

Basically much of the boom was spent on personal income tax cuts and public support for people who didn't need it (via mechanisms such as superannuation tax breaks and the Seniors Supplement).

The GFC increased public debt

Michael Pascoe in Why our financial minnows are still too big to fail takes a look at a recent speech by Reserve Bank Governor Glenn Stevens. Stevens gave a "carefully considered presentation on how economic policy makers handled and perhaps should handle the global financial crisis".

One of Steven's observations Pascoe highlighted was the increase in public debt due to the GFC:

And then there was another “it’s not about Australia” observation by the governor that nonetheless is worth remembering in the local political context:

“One of the difficulties has been that public debt burdens rose sharply. This was partly as a result of the cost of fiscal stimulus measures and bank recapitalisations in some cases, but it was mainly because of the depth of the downturn in economic activity.

"A financial crisis and deep recession can easily add 20 or 30 percentage points to the ratio of debt to GDP, and did so in a number of cases.”

If you don’t like the (relatively low) level of Australian government debt now, consider what it might be if we hadn’t “gone early and hard” with stimulus. 

And, no, it wasn’t just China that saved Australia from recession – one of the more obviously weird claims regularly made from the loonier edge of the right.