Labor deserves credit, not death at ballot box

We may live in a globalised world but it hasn't made our election campaigns any less parochial and inward-looking. Perhaps in an effort to raise Australians' economic literacy, the Economic Society recently sponsored a national tour by Professor Joe Stiglitz, a Nobel prize winner and one of the world's most illustrious economists.

Some brave soul asked him if he'd learnt anything while he was here. Well, he said politely, there were a few things that had puzzled him. He couldn't understand why we didn't know the success of the Rudd government's budgetary stimulus - explained by its size, timing and design - was the envy of the other G20 countries.

He couldn't understand why we were so worried about budget deficits and debt when our accumulated federal government debt was about 5 per cent of gross domestic product, whereas just one year's budget deficit in the US was 10 per cent of its GDP. And he couldn't understand why so many people were opposed to requiring the mining companies to pay a fair price for the use of our resources.

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Now more than 50 Australian economists have issued a statement saying they're ''convinced by the evidence that the co-ordinated policies of the Australian Labor government have prevented the Australian economy from a deep recession and prevented a massive increase in unemployment''.

Economic management is the dominant issue in almost every election campaign and I don't imagine it's much different in other countries. But that Labor could be in danger of losing the election after doing such a good job of guiding the economy through the worst global recession in 70 years is remarkable.

The usual pattern is for governments to be re-elected until finally they preside over a recession, when they're promptly tossed out. That's true of the Whitlam government (recession of the mid-1970s) and the Fraser government (recession of the early '80s). It's also true of the Hawke-Keating government (recession of the early '90s) although, thanks to the miscalculations of John Hewson, Paul Keating's execution was delayed until 1996.

The exception to the rule is John Howard. After more than 11 years he was tossed out without presiding over a recession. Indeed, the economy was booming at the time.

I have to admit that, back in 2007, I thought this wasn't a good election for Kevin Rudd to win. A recession was overdue, it was bound to occur within his first term, he'd get the blame and be tossed out after only three years. Right risk; wrong logic.

Much more than in the past, this downturn was very much the cause of external factors, in the form of the global financial crisis. But to the surprise of close observers, including the government and its econocrats, the recession proved to be so mild and short-lived many people have concluded there wasn't one. I'm sure many people who don't follow these things closely have since concluded the whole thing was a media beat-up.

(The media didn't invent the collapse of various local fringe financial institutions, nor the 0.8 per cent fall in real gross domestic product in the December quarter of 2008 and the weak growth in later quarters, nor the 230,000 rise in unemployment and the bigger rise in underemployment, nor the much tougher borrowing conditions for small business, nor the present weakness in retail sales and home building as the effects of budgetary stimulus have worn off.)

Many factors contributed to the mildness of our recession: the absence of serious banking problems, the strong growth in immigration, China's rapid bounce-back following its own massive stimulus, and the Reserve Bank's 4.25 percentage point cut in the official interest rate.

But like most (although, of course, never all) economists, I have no doubt about the central role of the Rudd government's large, early and carefully targeted budgetary stimulus. Its impact is clear from the statistics, including the remarkably early recovery in business and consumer confidence.

Most voters aren't interested in that kind of causal detail, of course. By their usual simple standard - did you or didn't you preside over a noticeable recession? - the government has passed with flying colours. So why isn't it coasting to an easy election win?

Partly because of its chronic inability to explain and defend its policies. But also because, if anything, the government has been too successful at staving off the usual symptoms of recession. There's little sense of gratitude, or even relief, because the period of fear - of losing your job, of wondering whether you might lose your home, of watching your kids spend months seeking a job - was too brief.

Our adversarial political system means the opposition always needs to find fault with the government's performance. It would dearly love to have been able to berate the government for its failure to hold off recession and prevent a huge rise in unemployment.

In the absence of that, however, the Liberals have switched to the claim that Labor has been on an unnecessary spending spree. It has racked up a frightening level of government debt to be left to our grandchildren and, if that wasn't bad enough, most of the money has been wasted.

There has been waste. Trying to spend money quickly means a degree of waste is inevitable. But with the willing help of sections of the media, the Libs have left voters with a quite exaggerated impression of the extent of that waste.

We're being asked to believe Rudd and Julia Gillard invented government waste. It never occurred under Howard and would never occur under an Abbott government.

But in all the hypocritical talk of waste, a far more important form of waste has been forgotten: the waste of material production and the waste of human well-being had the rise in unemployment not been stopped at 675,000 souls and been allowed to reach the 1 million originally feared.