Looking back, Scott Morrison's response to the coronavirus has been masterful on the medical side and, on the economic side, his willingness to spend money cushioning the job-threatening consequences of the lockdown was unstinting. But (and there had to be a but) with the economy's recovery far from assured I fear his nerve may be cracking.
The plain truth is that the only way out of deep recessions is for governments to spend their way out. But for a government as far to the right as Morrison's, spending money with enthusiasm is an unnatural act. It has an ideological objection to government spending which, it believes, is a necessary evil at best, and so should be kept to a minimum.
It claims to be motivated by the pursuit of Jobs and Growth but its "revealed preference", as economists say – not what it says, but what it does – is to prioritise the elimination of debt and deficit.
So great is its aversion to debt that the government is impervious to reason. Interest rates have been so low for so long that governments can borrow for 1 per cent or less. When you allow for an inflation rate of about 2 per cent, this means financial institutions (including your super fund) are willing to pay the government for the privilege of lending to it.
In which case, why not borrow as much as you need? Because that word "debt" just sounds so bad. And that debt will have to be repaid by our children. Actually, it won't be. Governments rarely repay debt. What they mainly do is roll it over while they wait for the economy to outgrow it, with help from inflation.
And ask yourself this: what do you think your kids would prefer to inherit? A bit more public debt or an economy that's been deeply recessed for a decade, with stagnant living standards, little opportunity to get ahead and stories about how much better things were in their parents' day.
Recessions always involve the private sector – businesses and households – contracting and the public sector expanding to take up the slack and get things moving again. In our particular circumstances, six years of weak wage growth and record household housing debt mean consumers have little scope to start spending big.
For their part, businesses won't spend on expansion until they see a reason to. Morrison's notion of incentivising business with investment tax breaks, changes to wage fixing and cuts in red tape is magical thinking.
That leaves it up to the government to keep spending until the private sector has the wherewithal to spend. Without a government-laid foundation, believing in a "business-led recovery" is believing the economy runs on spontaneous combustion.
I suspect Morrison has looked at our prospective budget deficits and taken fright. Paradoxically, although he readily agreed to the JobKeeper wage subsidy scheme when told it would cost $130 billion, when Treasury realised it wouldn't take nearly as much to "flatten the curve" as the epidemiologists had led it to expect and so cut the cost to $70 billion, Morrison saw this as a miraculous escape from the sin of profligacy.
The ideologically pure end of his own party started urging him to spend no more. And this week he started talking about the need to find budgetary savings.
This would be completely contrary to the advice he received only last week from the Organisation for Economic Co-operation and Development that "there is ample fiscal space to support the economic recovery as needed". This is the OECD's way of saying "if you Aussies think you have a frightening level of debt, you're kidding yourselves". The International Monetary Fund says the same.
The OECD continues: "The scarring effects of unemployment – especially for young workers – should be alleviated through education and training, as well as enhancing job search programs. Firms should continue to be supported ... The authorities should be considering further stimulus that may be needed once existing measures expire ... Such support should focus on improving resilience and social and physical infrastructure, including strengthening the social safety net and investing in energy efficiency and social housing."
To be fair, should Morrison turn from spending to cutting before the economy has fully recovered, he'd be no more disastrously wrong-headed than Britain's David Cameron and other European leaders after the global financial crisis, when they started tightening their budgets too soon and condemned their countries to a decade of weak growth.
You can see Morrison's change of tack in his poorly received HomeBuilder package. Reviving the housing industry is a standard part of the response to every recession, but this is the package you have when you're only pretending to have a package.
It's too small to make much difference and the deadlines for its $25,000 grants are so tight few people are likely to qualify. Glaring by its absence was any mention of spending on social housing.
But this raises another of the Libs' hang-ups. They oppose government spending in general, but spending that helps the needy in particular.
