Gittins: Hard head, soft heart
As a community we need to look after those less fortunate than ourselves and the government should take note. Ross Gittins explains.PT3M24S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-32173 620 349 February 5, 2014
To me it doesn't seem all that long ago, but looking back I have to admit the economy has changed hugely since my first day as an over-age cadet journalist on February 7, 1974. Some things are worse, but a lot are better.
What strikes me most, however, is the roller-coaster ride we have been on to get from then to now. In those days, just eight years after we moved from pounds, shillings and pence, TV was still black and white and my new employer had a five-digit phone number. Gough Whitlam was prime minister and Billy Snedden was opposition leader.
From the viewpoint of economic news, the timing of my arrival at Fairfax was perfect.
An ambitious young suburban solicitor named Howard was preparing to take a seat in Parliament at the election to be held three months later. (Outlasted you, John.)
Witness to an evolution: Ross Gittins has seen it all, from Whitlam to Abbott.
As a cadet I earned about $100 a week, a big comedown from my former pay as a chartered accountant, but a lot better than the $45.50 a week paid to married pensioners. It would take me some years to get up to the top tax rate of 66.7 per cent, which cut in at $40,000 a year.
Child endowment was 50¢ a week for the first kid and $1 for the second.
The standard interest rate paid on passbook savings accounts of 3.75 per cent doesn't look too bad today, and the mortgage interest rate of 8.4 per cent probably isn't as low as you expected. But remember that the inflation rate was 14 per cent.
Timeline: 40 years of economic policy in Australia.
A few years after I joined Fairfax we bought a not-so ''ideal first home'' in the inner city for $27,000. Its value would have increased at least 20-fold since then. Incomes have also increased a lot, of course - there are a lot more two-income families, and even established houses get ever bigger and better. But, even allowing for all that, we have bid up the prices of houses and units relative to other things.
The rate of unemployment was 2.4 per cent in 1974, which was up from 1.8 per cent the previous year and so considered high. It would hit 4.6 per cent by the time the Whitlam government was dismissed in November 1975.
Almost two-thirds of the labour force was male and only one worker in eight was part-time. Today women account for a bit less than half the labour force and almost one worker in three is part-time. The number of people in jobs has almost doubled to 11.6 million.
Recent treasurers: (from top) Paul Keating, Peter Costello and Wayne Swan.
These days, a higher proportion of students stay on to year 12 and a high proportion go on to uni. Biggest difference: females have a higher rate of ''educational attainment'' than males.
Then, almost one in four workers worked in manufacturing (which in those days included John Fairfax Limited, manufacturer of newspapers) whereas today it's about one in 12.
The big jobs growth has been in health, education and all manner of ''business services''. The fastest-growing occupations have been managers, professionals and associate professionals. Beats blue-collar work.
The value of the Australian dollar was fixed at $US1.49 but, in those days before the advent of the jumbo jet, overseas travel was much more expensive, relative to other things, than it is today.
Forty years ago imports accounted for 13 per cent of the value of all we bought. Today it's more than 21 per cent. But then we exported less than 13 per cent of all we produced, whereas today it's almost 21 per cent. Thanks particularly to the efforts of Paul Keating and Bob Hawke, our economy is these days a lot more open to the rest of the world. Less of our trade is with America and Europe and a lot more is with Asia - China, Japan, South Korea and India.
When I started my economy-watching, the value of all the goods and services Australia produced in a year was $54 billion. Today it's more than $1.5 trillion. But don't forget consumer prices have increased by 700 per cent since then and the population has gone from less than 14 million to more than 23 million.
Even so, Australia's real income per person has almost doubled, so there's no doubting we are far better off materially.
What price we have paid for this in strained relationships, stress and mental ill-health, greater inequality and damage to the environment is another matter - one we prefer not to think about and put too little effort into measuring.
From the viewpoint of economic news, the timing of my arrival at Fairfax was perfect. In 1974 the postwar golden age of low inflation and full employment throughout the developed world came to an abrupt end.
It was ushered out by the first OPEC oil price shock, which hit in late 1973, and the advent of an ugly word to describe a new and ugly state of affairs - stagflation, the combination of high inflation with high unemployment.
It was a turning point in the history of the world economy and the Whitlam government had no idea what hit it. It was undeterred in its efforts to correct 23 years of perceived Liberal backwardness within a three-year term.
But it wasn't just the politicians who didn't get it. It took the world's economists at least a decade to work out why things had gone wrong and how economies should be managed so as to keep both inflation and unemployment low.
It took the rich world's governments even longer to get their economies back in working order and it took longest in Australia, mainly because of the Whitlam government's excesses, which took longer to work off.
When I arrived at Fairfax the economy was booming, with wages set to rise by 25 per cent in a year and prices headed for an inflation rate of 17.7 per cent.
But before the year was out the economy was contracting thanks to a Treasury-inspired ''short, sharp shock''. Despite Dr Jim Cairns' frantic efforts to revive it, the Whitlam recession had begun.
Malcolm Fraser happily echoed all the ''smaller government'' rhetoric coming from Maggie Thatcher and Ronald Reagan, but didn't really believe it. He thought it was just a case of not doing the things Whitlam had done and everything would get back to the way it had been before the arrival of the interlopers.
It didn't. He dismantled Medibank because it annoyed the doctors so much, but couldn't bring himself to cut government spending hard. Unlike his treasurer, Howard, he was no economic rationalist.
The economy did pick up a bit. The inflation rate fell, but by September 1982 it was back up to 12 per cent. There was talk of a mining boom, but instead we got the severe recession of the early 1980s, with unemployment reaching a peak of 10.3 per cent just a month or two after the election of the Hawke government.
Hawke's timing was perfect. The drought broke and the recession ended within months of his ascension. He used his Accord with the union movement to cut real wages and the result was very strong growth in employment.
The election of March 1983 gave voters no indication that Labor's treasurer, Keating, was about to completely remodel the economy - though, as Keating reminded the ABC's Kerry O'Brien recently, he did spell out his intentions in an interview with me within a few weeks of taking the job.
Labor floated the dollar, deregulated the banks, reformed the tax system, largely removed protection against imports, privatised most federal government-owned businesses, ended centralised wage-fixing and moved to enterprise bargaining.
It was most un-Labor-like behaviour and many supporters hated it. But with their new-found freedom the banks went crazy with their lending to business, the economy boomed and unemployment got to a brief low of 5.9 per cent in late 1989, which was when the government's frantic efforts to slow the economy took mortgage interest rates to 17 per cent.
The result was the severe recession of the early 1990s, in which unemployment peaked at 11 per cent in the first half of 1992. Because so many businesses had borrowed so much to buy assets now worth a lot less than they had paid, the recession was particularly protracted and the recovery painfully slow.
After Dr John Hewson muffed things, Howard was perfectly placed in 1996 to benefit from all Keating's economic reforms as well as the ''recession we [didn't] have to have''. Inflation got back under control late in Keating's term, but Howard didn't get unemployment back under 6 per cent until late 2003.
He made few further reforms apart from granting policy independence to the Reserve Bank, introducing the Goods and Services Tax and over-reaching on industrial relations.
Peter Costello steered the ship steadily until the revenue flooding in from the resources boom led him to go crazy with tax cuts and unsustainable superannuation concessions, thus laying the foundations for the present chronic budget problems now being blamed solely on Kevin Rudd and Julia Gillard.
Their failings are too recent to need repeating, but already we've forgotten Labor's greatest macro-economic achievement: limiting the fallout from the global financial crisis to a mild downturn. Anyone could have done it? Don't believe it.
Mirror, mirror on the wall, who were the greatest treasurers of all?
In the 40 years I've now been an economic journalist for Fairfax Media I've given 12 federal treasurers the benefit of my free advice. I doubt it has made much difference, but I do know this: despite all you read in the paper, our economy is now far better managed than it used to be.
For this I give most of the political credit to just three of them: Paul Keating, by a country mile, Peter Costello and one you won't believe: Wayne Swan.
That the economy is now far better managed is easily proved. We went from boom to recession in my first year, 1974, back into a severe recession in 1982 under treasurer John Howard, and then again in 1990 with Keating's ''recession we had to have''.
Each was worse than the one before and each was correctly labelled ''the worst recession since the Great Depression''. I formed the view that recessions happened about every eight years. But as Paul Bloxham, of the HSBC bank, has reminded us, Australia is now in its 23rd year of continuous economic growth. Must be doing something right.
To have achieved such an unprecedented gap since the last severe recession we had to escape the Asian financial crisis of 1997-98, the US ''tech-wreck'' recession of the early 2000s and the Great Recession that followed the global financial crisis in 2008 - and still isn't really over.
Reckon that was all down to good luck?
We owe it at least as much to good management. I know because I remember the roller-coaster ride the economy was on before the econocrats got it back under control.
Wages rising 25 per cent in a year and inflation hitting more than 17 per cent under the Whitlam government; inflation back up to 12 per cent under treasurer Howard and unemployment peaking above 10 per cent after his recession; mortgage interest rates hitting 17 per cent and unemployment peaking at 11 per cent in Keating's recession.
Turns out the present growth period accounts for just over half my 40 years. And of my 12 treasurers, Keating, Costello and Swan were in office for well over half.
Keating is our best treasurer by far because he instigated the sweeping reforms that transformed the economy and laid the groundwork for better day-to-day management of it. He made the economy less inflation-prone and more flexible, thus able to reduce unemployment faster.
Costello's greatest achievement was to free the Reserve Bank to change interest rates as it saw necessary, meaning the economy is now managed more by econocrats than politicians. He also ensured our banks were tightly supervised while the Americans were letting theirs create so much havoc.
Swan deserves a spot on the treasurers' honour board purely for his surprisingly deft handling of stimulus spending and human confidence after the GFC, ensuring we suffered only the mildest of recessions. Aided by some in the media, his political opponents have had great success in rewriting that recent history. But later historians won't be deceived.
Accolades for Ross Gittins from the higher powers
His columns have for decades been required reading for policy makers, teachers and students in economics. Devoted to the writer’s craft, calling things as he sees them, and conscious of an obligation to explain the great issues of the day in plain language, he has through his regular columns made a unique contribution to public understanding and discussion of important matters in our national life. His willingness to think outside the conventional wisdom, including challenging the convenient assumptions about human behaviour that economists too easily make, shows a genuine intellect at work. Glenn Stevens, Governor, Reserve Bank of Australia
Ross Gittins is one of a rare breed of economic journalists who uses his role as economics editor to dispassionately explain and elucidate issues rather than sensationalise them and play on the prejudices of his readership. For 40 years Ross Gittins has turned complex concepts into easily communicated ideas. In doing so he has not only educated a generation of Australians on economics, he has helped generate a higher quality economic debate to the benefit of all Australians. Martin Parkinson, Treasury Secretary