I know I’m a bit late, but welcome to 2025. Before we get on with a year of absolutely gratuitous economic angst courtesy of a great American conman’s second coming, let’s take a breath and realise we’re already a quarter of the way through what many still think of as the “new” century.
How time flies while you’re preoccupied with one crisis – one damn thing – after another. I hate to undercut the media’s business model, but old age has taught me that most of the things we find so momentous at the time don’t leave much of a mark on the course of history.
In the heat of battle, we imagine the distant future having been irreversibly shaped by the latest unexpected excitement. A global trade war, for instance. Sorry, a beginner’s error.
Late last year I learnt that, in 1975, “15 leading Australians” had produced a book titled Australia 2025, which examined “the changing face of their country 50 years from now”. It was published by Electrolux, maker of vacuum cleaners.
What a great way to kick off another year of columns, I thought as I asked our library to disinter this gem from the archives. To be honest, I expected it would be great fun. All those fearless predictions about how, by 2025, we’d be flying to work in our spaceships. Or maybe by then computers would mean everyone was working from home.
Wrong. The chapter on the economy was written by someone I dimly remember, BHP’s chief economist at the time, John Brunner. He was far too smart to get caught making fanciful predictions about spaceships or anything else much. He devoted most of his 10 pages to explaining why anything he predicted was likely to be wrong.
He listed all the country’s recent problems, which many more impetuous observers could be tempted to foresee changing our future, while then expressing his doubts. For example, at that time, and still under the Whitlam government, we had a big problem with double-digit inflation. Would this problem be with us for another 50 years?
Brunner recorded all the reasons for thinking it might: “the increasing power of the unions, more generous unemployment benefits, vulnerability of capital-intensive industry to strikes” and “perhaps most potent of all, the commitment of governments to full employment”.
Even so, Brunner doubted it. And he was right. “What?” you say. “We’ve had a problem with high inflation in just the past few years.”
True. But much of the reason we’ve found it so disconcerting is that we’ve become so unused to high inflation. This latest, pandemic-caused surge in prices ended a period of about 30 years in which inflation stayed low, in Australia and all other rich countries.
Why is it so rare for the problem of the moment to be the thing that shapes the next 50 years? Because, as Brunner well understood, when big problems emerge, ordinary businesses and consumers look for ways around them, while governments look for ways to fix them. Action leads inevitably to reaction. And market economies like ours are adept at finding solutions to problems.
Consider Brunner’s list of reasons for predicting eternal high inflation. Powerful unions? Globalisation stopped that. So did the deregulation of wage-fixing. Generous unemployment benefits? Tell that to the Australian Council of Social Service. These days, every sensible person thinks the dole is too low.
As for “the commitment of governments to full employment”, it became a commitment in name only just a few years after Brunner was writing. Overseas economists invented an escape clause they called the “non-accelerating inflation” rate of unemployment, or NAIRU, and naturally, our government and its econocrats jumped at it.
For about the first 30 years after World War II, our rate of unemployment rarely got above 2 per cent. Allow for the workers who happened to be between jobs at any given time and that really was full employment.
But by 1975, inflation was in double digits and the unemployment rate had jumped to 4.6 per cent. The governments of the rich economies dumped the full-employment objective and turned every effort towards getting inflation down.
Thanks mainly to all the extra money the Morrison government spent during the pandemic, our unemployment rate fell to 3.5 per cent early in the Albanese government’s term. As I hope you remember hearing, this was the lowest unemployment had fallen to “in about 50 years”.
Quite accidentally, we’d got back to something like full employment. But get this. If you wonder why the Reserve Bank is so reluctant to cut interest rates, it’s because its battered old NAIRU machine keeps telling it unemployment is still too low.
This brings me to a bit of Brunner wisdom worth repeating 50 years later. “One of the superstitions to which modern man is particularly susceptible is the idea that what comes out of the computer must represent the law and the prophets [the Old Testament].”
“But of course what comes out of a computer depends on what goes into it and if you feed in neo-Malthusian assumptions you will get gloomy answers.” (Thomas Malthus was a notoriously pessimistic English economist from the 18th century.)
Finally, this: “Probably no profession spends more time contemplating the future than the economics profession and yet few are worse equipped for the task. For whatever facility they may have for manipulating economic variables, economists really know very little indeed about what determines economic magnitudes, particularly in the long run.
“The long-term rate of economic growth, for instance, will be determined by a host of political, technological and cultural factors which no economist has any special claims to be able to predict.”
Ah. They don’t make business economists like him any more.
