Peter Costello was the exactly the type of reckless federal treasurer that conservative economists are afraid of.
While few people doubt Keynes' idea that government spending can boost a flagging economy, conservative economists typically oppose Keynesian stimulus spending on the basis that politicians can't be trusted to stop handing out expensive policies when the economy is booming.
According to the IMF, Mr Costello's 2003 budget and the budgets between 2005 and 2007 were Australia's most "profligate" in the past 50 years. Not only did his expensive and inequitable tax cuts force the RBA to increase interest rates at the time, they caused Joe Hockey's current budget deficits. Thanks Pete.
Australia's current and impending economic problems are inextricably linked to the decisions made by Mr Costello back when the economy was booming. His expensive decision to halve the capital gains tax is playing a major role in the current housing boom. His tax concessions for superannuation have cost the budget tens of billions of dollars. And his subsidies for mining companies poured fuel on the mining boom fire, pushing up the dollar and driving manufacturing offshore faster than it otherwise might have.
Of course Mr Costello argues the exact opposite. He delivered budget surpluses so he must have been acting responsibly. But since when do we let politicians write their own histories?
Mr Costello's version of history relies on a simple trick. Just as a magician uses misdirection to focus the audience's attention elsewhere while he pulls something out of his sleeve, Mr Costello trained the public to focus on the existence of any budget surplus to distract us from the real issue of the size of that surplus.
While there is no doubt that Mr Costello delivered surpluses, the IMF makes clear that his enormous and inequitable tax cuts were unaffordable and that his surpluses weren't big enough given the strength of the boom he was riding.
Consider the following example. As the mercury plummets and early snow falls, more people are heading to the Snowy Mountains. Cafes and petrol stations in Jindabyne are starting to boom. By August their weekly profits will be enormous compared to their current levels. By the end of the winter boom, buying a luxury car must seem eminently affordable for these business owners.
But they know that summer is coming. While no responsible business person would respond to a cyclical boost by taking on needless expense, that is exactly what Mr Costello did.
He implemented permanent tax cuts in response to a temporary boost in revenue. The fact that he delivered surpluses when revenue was booming is not proof he was responsible. On the contrary, the fact that he implemented long-run policy change on the back of a short-term boost in revenue is proof that he was irresponsible. A conclusion shared by the IMF.
There are two human responses to a boom, be it a mining boom or the Sydney house price boom. First, there are those who look to the past and remember that what goes up must come down.
Or, there are those who, like Mr Costello and Tony Abbott, believe that good things happen to good people and that booms are the reward for voting liberal. Mr Costello seems to genuinely believe that had he remained treasurer there would have been no GFC, no massive slowdown in the world economy and no budget deficits. Similarly, Mr Abbott is now suggesting that house prices will remain high as long as he remains Prime Minister and that a vote for Bill Shorten is a vote for lower house prices. What could go wrong?
The same denial is dominating the debate around superannuation policy. Just as the IMF criticised Mr Costello's fiscal management, former Commonwealth Bank CEO David Murray argues that the longer we put off superannuation reform, the harder and more expensive the problem will be to solve. But just as Mr Costello was willing to take credit for good timing and ignore the need to make hard decisions, Mr Abbott has promised to ignore the cost of super tax concessions, which will soon cost $50 billion per year. Again, what could go wrong?
Politicians are as quick to take credit for good economic news as they are to blame their opponents for bad economic news. But while indicators such as inflation and unemployment jump around every quarter, in reality their volatility is usually driven by measurement error and events beyond the government's control. Similarly, long-term trends are driven less by recent government decisions and more by decisions made years, or even decades ago.
Mr Costello's tax cuts are the main cause of Mr Hockey's budget deficits. The main cause of Wayne Swan's budget deficits was the largest global recession since the 1930s. The main cause of Mr Costello's budget surpluses was the unexpected surge in the Chinese economy and record corporate tax receipts.
Ironically, the prosperity of the Menzies era flowed from a global acceptance of the effectiveness of the Keynesian policies that modern liberals are so hostile to. The budget papers of the 1950s remind us that the Menzies ran deficits for nine of 18 budgets.
The focus of the modern media, and modern politicians, is so short term that we tend to blame or credit the incumbent government for whatever happens on their watch. But economic policy is more complicated, and has much longer lags between cause and effect, than most contemporary commentators can cope with.
Just as our behaviour on a Saturday night determines the size of our hangover on a Sunday morning, policy during a boom affects the depth of the subsequent downturn. So it's concerning that Mr Abbott seems determined to talk up the Sydney property boom, with little concern for any subsequent bust.
Richard Denniss is executive director of The Australia Institute. Twitter: @RDNS_TAI
Dr Richard Denniss is chief economist at The Australia Institute, a Canberra think tank, www.tai.org.au