Inside Story

The living truth

The Coalition’s contribution to economic debate is inflexible and unpersuasive, writes Geoffrey Barker

Geoffrey Barker 1 October 2009 1297 words

Reserve Bank governor Glenn Stevens addresses the House Economics Committee in Sydney in August. AAP Image/Dean Lewins

KEN HENRY and Glenn Stevens are not the federal opposition’s bureaucrats of choice. Since they expressed their support for a continuation of the federal government’s economic stimulus policies, the Treasury secretary and the Reserve Bank governor have been under fire from Malcolm Turnbull and other opposition luminaries. Turnbull sought to dismiss Henry as “an ambassador for the government” because he said that a sustained Australian economic recovery was reliant on continued stimulus spending. Coalition finance spokeswoman Senator Helen Coonan strained mightily to find in remarks by Stevens some support for the view that less stimulus spending would reduce pressure on interest rates.

There is something heroically contrarian about the opposition’s strategy given that the stimulus spending has helped to keep Australia out of recession and keep Australians in jobs which otherwise would have vanished. Stimulus programs received high marks at the recent G20 meeting and Kevin Rudd and treasurer Wayne Swan are now basking in the prospect of a smaller-than-expected (although still mammoth) budget deficit, and are enjoying high levels of public support as Australia manages to avoid recession and times appear to be improving.

Desperate to contrive a gloomier economic story to boost Coalition electoral support, Turnbull and shadow treasurer Joe Hockey are drumming up the prospect of mounting national debt and interest rate increases and crediting Australia’s economic performance’s to factors other than the stimulus. Hockey says airily that the Coalition would continue some stimulus, but not “reckless” spending.

It is, of course, true that national debt has risen, that interest rates will rise as economic recovery gathers pace, and that the economic stimulus is only one reason why Australia has coped well through the global financial crisis. It is also true that government should not spend recklessly. But what is “reckless”? How parsimonious does the Coalition want to be? There is, after all, a clear government plan to wind back the stimulus as recovery occurs – a plan that Stevens says will unfold more or less on schedule (and a few months slippage would be “no big deal”). So what’s going on here?

Despite their attempts to discredit Henry and to find comfort in Stevens’ remarks, it seems that the Coalition is opposing only the scale and duration of the stimulus package. It has received loyal support from some economic commentators, but no comfort from the nation’s two preeminent economic advisers or from voters. So it is working to persuade the public that the economic news is really not so good and that the government is to blame – and that, as they say, is just the nature of politics.

But is it? It is almost fifty years since Bernard Crick published his little classic, In Defence of Politics (1962) and 150 years exactly since John Stuart Mill published his great essay On Liberty (1859). Both said a lot that is relevant the Coalition’s contributions to the current economic debate.

Crick noted that economics is not a science that tells societies what they may not or should not do. While he didn’t point to the dismal predictive and anticipatory record of macroeconomics, Crick did observe accurately that economics was “a science only in the very simple but important sense that it can calculate the price of any social demand in terms of relinquished alternatives.”

Ken Henry’s calculation was that unemployment would rise and growth would fall back if the stimulus was withdrawn now. The government has accepted that calculation and acted on it; Henry has used his high public profile to defend his advice. Stevens, meanwhile, has said the Reserve Bank has no concern over what Coalition propaganda calls the government’s “debt bomb.”

Those assessments, according to Turnbull, make Henry “an ambassador” for the government and “part of the government.” Turnbull might now tell voters whether he would retain Henry as Treasury chief if the Coalition came office or whether, like John Howard in 1996, he would take an axe to public servants whose views he did not share.

Crick also noted that economics could not predetermine any political decision. “All resources are not economic, all alternatives are not priceable; freedom, for instance, we may properly say is in the long run beyond price; the desire for knowledge – which can have, God knows, the most unpredictable consequences – is quite unpriceable,” he wrote.

The Coalition is assuming a posture of self-proclaimed economic responsibility. So what price would it put on the number of people who would be without jobs if the stimulus was withdrawn? What price would it put on the increased human hardship that would follow? How much social comfort would the Coalition relinquish in order to minimise the debt that Stevens says is not likely to be a problem. None of this is clear.

The Coalition’s emphasis is on those comparatively fortunate Australians who can consider purchasing houses but who might face higher interest rates soon – higher interest rates coming off a historically low base. Serious equity questions are begged by this policy but, of course, they are generally being avoided by the Coalition at the moment. A cynic might think that the opposition’s primary aim is to strengthen its natural political support base rather than to defend the public revenue.

Then there is that unpriceable desire for knowledge, only mentioned in passing by Crick but discussed in great detail by Mill in chapter 2 of On Liberty. Mill’s “vital truth” argument goes to the heart of what justifies the attacks on the economic stimulus package by Turnbull, Hockey, Coonan et al. The argument is that beliefs and knowledge claims will be held as “dead dogma, not a living truth” unless exposed to the permanent ongoing challenge of critical scrutiny and fearless discussion. Unless an opinion “is suffered to be, and actually is, vigorously and earnestly contested, it will, by most of those who receive it, be held in the manner of a prejudice, with little comprehension or feeling of its rational grounds,” Mill wrote.

While there are innumerable beliefs, opinions and knowledge claims that are held as living and dependable truths without the permanent ongoing challenge of criticism, Mill’s point is persuasive. It stresses the value of open debate in establishing and reinforcing truth and it anticipates Popper’s claim a century later that the falsification and modification of scientific hypotheses is the path to deepening our understanding of the world. A claim not capable of falsification is, in Mill’s phrase, a dead dogma.

Messrs Turnbull and Hockey are not, of course, earnest seekers of wisdom and truth for the sake of improved knowledge. Their search is for a politically persuasive account of economic policy that will discredit the government, win them votes, and eventually see them into office. The vital truth argument justifies the pitch they are making to the public, but it neither supports nor undermines their economic views. All it shows is that we have a free government that tolerates opposition. As Crick says, politics “is a way of ruling divided societies without undue violence.”

Mill’s argument is a two-edged weapon for Turnbull and Hockey. In trying to discredit government policy, they are exposing their own views to the tests of critical scrutiny, discussion and coherence. With no apparent axe to grind, Messrs Henry and Stevens have argued that it is the Coalition that is pushing an inflexible economic dogma despite the clear (and affordable) success of government policy. Mr Turnbull may need another chat with Godwin Gretch. •