Treating him like Churchill rather than a sometimes malleable copyist as Treasurer and an easybeat as prime minister, The Weekend Australian is today running an exclusive interview with Paul Keating to mark the fiftieth anniversary of his election to Parliament. Predictably, he declares that “monetary policy has run its race” and that an Australian version of US-style QE would have no stimulatory benefits. Interest rates have been declared bereft of further pep by the RBA; how to grow economies is the conundrum being pondered – hubristically – by central banks the world over. Keating’s advice to the Morrison government is a return to Keynes and massive spending on infrastructure:
“We are moving into a new world of big government after 30 or 40 years of smaller government because, with world growth shrinking and monetary policy being incapable of providing the stimulus, the building of infrastructure both by governments and by private industry, perhaps acting in concert, is the way forward.”
This would also be a return of sorts to Keating’s own One Nation – the unfortunately named 1992 spending package cobbled together by his office to stymie John Hewson’s Fightback! and turn around five consecutive quarters of contraction on his watch. Now he calls the same thing an “Eisenhower-type turn” in honour of the federally funded US Interstate Highway System whose construction began in the mid-1950s.
Worth mentioning here (interviewer Troy Bramston forgot) is that Keating is now a senior adviser to one of the Chinese Communist Party’s policy banks – the China Development Bank – which, in addition to being the dedicated domestic infrastructure lender for that country, is also China’s largest foreign investment and financing cooperation bank.
Leaving aside two things: that this was a conventional Keating interview (obsequious) and that he has no interest in the kind of supply-side solutions proposed by Peter Costello, the other remarkable thing was Keating’s redefinition of economics itself. Some deference derived from etymology is customarily afforded to everyman by the dismal science (οἰκονόμος: “household management” and all that).
“The case for fiscal expansion is simply staring you in the face. The accounts of a nation are not like a household account — they don’t have to run in surplus because a nation can tax and can grow.”
It would be truer to say the state doesn’t have to run in surplus because it cannot be evicted or imprisoned. A household may not be able to compulsorily extract money from others – unless its members turn to crime; that’s true. But its wealth can grow via saving, prudent spending, wise investment, delayed gratification, longer (or smarter) working hours, accessible markets for requisites and minimal impositions from exterior authority. Maybe the Greeks were on to something. Second, one reason consumer spending is cratering is that the level of household debt to income in Australia is at a record high (190 percent). Keating is therefore proposing not that the government do something different to households but that it makes the same mistakes.