By Michael Griffin
Malcolm Turnbull took a policy of ‘jobs and growth’ to the federal election in 2016. Since being elected, Turnbull has continued to espouse this ‘jobs and growth’ mantra whenever it’s been convenient for him to do so including recently when he accused the media of being ‘celebrity focused’ and not ‘jobs focused’. Yet the Liberal government has had no success at creating jobs and the minimal economic growth that has occurred in the Australian economy during Turnbull’s term of office has been achieved despite his policies and by factors outside his and his government’s control, in particular, by rising iron ore and coal export prices on the global market.
Turnbull’s strategy to increase employment and growth is rooted in the discredited neo-liberal ‘pseudo-theory’ referred to as ‘trickle-down’ economics. The trickle-down ‘theory’ holds that Governments should resist adopting regulations, laws and arrangements that facilitate a broader and fairer distribution of national wealth and, instead, favour policies that enable an elite few to keep a higher share of the profits and of the national wealth generated from the use of publicly owned resources such as roads, ports and minerals. The trickle-down ‘theory’ holds that because this wealthy elite will then invest their gains and create new enterprises, increased employment will follow. This ‘theory’ has been discredited for many years now. It is the theory that lead to the Global Financial Crisis of 2008. It is now considered to be merely a myth, a fiction or self-interested ideology, without an objective, rational or a scientific basis, conceived by its chief proponents, such as, Milton Friedman at the Chicago School of Economics, under sponsorship from beneficiaries of the theory. That is, under sponsorship from the wealthy elite. The ‘theory’ itself was ‘tested’ only by selectively using facts and data that fitted the pre-determined and preferred conclusions and that were consistent with the personal interests of the wealthy elite who sponsored Freidman’s work and who had much to gain from its widespread acceptance. That is, it was verified by selecting and relying upon facts that support its validity while concealing and ignoring other data that refutes its validity.
Not one single economic school of thought in the world today counts Freidman amongst its principle ideologues, yet the Turnbull Liberals still revere this discredited economist and the neo-liberalist trickle-down ‘theory’ he concocted. The reverence for trickle-down and its adherence can be traced to the fact that it suits the Liberal Party’s rich donors and the personal interests of their own members. The reverence for the trickle-down ‘theory’ amongst the Liberals also indicates that the party itself has been captured by self-serving elitists seeking to advance their own interests at the expense of others and of the nation as a whole. Given Turnbull’s personal wealth, and the extensive loans he has made to the Liberal Party, it is open to conclude that he is one of the conservative elite who has captured the party and diverted it from its liberalist beginnings.
Research findings in the 2015 report of the International Monetary Fund Causes and Consequences of Income Inequality: A Global Perspective (‘the IMF 2015 Report’) exposes Turnbull’s preferred trickle-down economic strategy for the fiction it is. This is the IMF, an organisation that could hardly be described as ‘left leaning’ or ‘left bias’, and its report concludes that:
…increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth – that is, when the rich get richer, benefits do not trickle down.
And, more specifically:
If the income share of the top 20 percent increases by 1 percentage point, GDP growth is actually 0.08 percentage point lower in the following five years, suggesting that the benefits do not trickle down.
On the other hand the report concludes that:
…a similar increase in the income share of the bottom 20 percent (the poor) is associated with 0.38 percentage point higher growth.
As the report points out, the positive relationship between a fairer distribution of income and national wealth and higher economic growth continues when a greater share of the national income and wealth is also distributed to the middle class.
The findings in the IMF 2015 Report directly contradict Friedman’s economics and the trickle-down ‘theory’ underlying Turnbull’s strategies and policies. It confirms the findings of earlier IMF research by economists Ostry, Berg, Tsangarides and Stiglitz that show there is no objective or rational basis to assume that the trickle-down strategies, which Turnbull has deployed to implement his ‘jobs and growth’ policy, can ever achieve the goals that Turnbull professes to seek. In practice, Turnbull’s policies – giving tax cuts to the wealthy and to corporations, cutting welfare payments and cutting penalty rates and wages to the low paid – are completely inconsistent with the IMF research findings and with the achievement of his stated jobs and growth objectives as they will have the opposite effect. That is, his strategies will lead to lower growth and less jobs.
If ever proof was needed of the invalidity of trickle-down ‘theory’ and that it cannot, in practice, produce the jobs and growth Turnbull professes to seek then there is no need to look any further than recent economic data for the Australian economy. Company profits are up by record levels yet wages and employment are down. The Australian Bureau of Statistics reports that business profits are up by 20.1 % across the board for the 3 months to December 2016 and COMSEC reports that profits for companies listed on the stock exchange were up a whopping 123% for the whole of 2016. Despite these profit results, wage growth was down 0.05% and unemployment was at 5.8 % in December 2016, up from the previous month, and had been trending upward over the whole of the 2016 period while profits were growing. For the trickle-down ‘theory’ relied upon by Turnbull to have some credibility one would expect that wages should have increased and unemployment decreased for the period that profits were rising. But that did not occur. Instead unemployment trended upward for the whole of the year. Moreover, the upward trend in unemployment will continue throughout 2017 as the withdrawal of government spending on the Australian automotive manufacturing industry means that industry will shut down over the course of 2017 causing further job losses of up to 200,000 nationwide into the future.
Given his reliance upon the trickle-down ‘theory’, it is inevitable then that Turnbull’s policies will lead to lower economic growth and to higher unemployment. This is so because, as the IMF 2015 Report also points out, income inequality:
…reduces aggregate demand and undermines growth, because the wealthy spend a lower fraction of their incomes than middle and lower-income groups
In other words, the concentration of incomes and wealth in the hands of the few, who spend a smaller proportion of any gain they obtain, has the effect of reducing the total level of spending and consumption in the economy, and, thereby, reduces the amount of people employed to service that spending and consumption. In a nut shell, the unproven trickle-down ‘theory’ is inconsistent with the proven principle in Keynes’ General Theory of Employment, Interest and Money. That principle is, in order to increase jobs, total demand and spending in the economy must rise and those rises can only occur if either the wages of low and middle incomes earners, including welfare recipients, increase, or by increases to government spending or, alternatively, by a combination of both of those measures.
Given the Liberal’s history of reducing and undermining wages and their persistent attacks on welfare, and given the recent Fair Work Commission decision to cut penalty rates, it is highly unlikely that we will see any increase in the spending power of low and middle income earners coming from wage and welfare rises in the near future that will be sufficient to generate the consumer demand necessary to drive the jobs and growth that Turnbull promised in 2016.
Moreover, it also unlikely that we will see increased government spending to generate the consumption necessary to produce the jobs and growth Turnbull has promised. For the Liberals to increase government spending would not only require them to abandon their adherence to the myth, as all other developed countries with a power to generate their own currency now have done, that government spending needs to be limited to the amounts of tax it collects, but it would also require them to admit that the discourse on the need for austerity that they have engaged in since coming to office in 2013 was wrong and little more than ideology and propaganda. Given the capture of the Liberal Party by the wealthy elite seeking to advance their own individual interests at the expense of all others and of the nation, such an admission and a subsequent increase in government spending to the benefit of the lower and middle income earners that was sufficient enough to generate consumer demand, and, hence, jobs growth, is not likely to occur under the Turnbull government anytime in the near future.
As a result, on the basis of the limited suite of policies and strategies Turnbull has adopted, there is no-where from where the jobs and growth he promised in 2016 can arise.
Examined in the context of the IMF 2015 Report, then, it is apparent that Turnbull will never be able to deliver the ‘jobs and growth’ he promised at the 2016 election. If Turnbull was ever genuine in his professed intention to create ‘jobs and growth’, rather than being set on some clandestine course of transferring wealth to himself and his Liberal Party cronies, then he and his government have adopted the wrong strategies to achieve those professed objectives. The austerity and trickle-down strategies he has adopted militate against the achievement of those objectives and, instead, produce the opposite result, that is, lower growth and more unemployment. Those strategies are, and always have been, inconsistent with Turnbull’s professed objectives as the transference of the national wealth from the less well-off and from the middle class to the already wealthy elite, who do not need and who cannot spend more than they already have, dampens consumer demand and spending. In doing so, Turnbull’s strategy decimates the small businesses that depend upon consumer spending and that generate the jobs so sorely desired and needed in the economy.
The policies of the Turnbull government are self-defeating. Judged against his election promises of ‘jobs and growth’, Turnbull’s Prime Ministership is doomed to failure. If it ever was Turnbull’s intention to achieve the stated objectives of ‘jobs and growth’ then the neo-liberalist trickle-down and austerity strategies he has adopted will never allow him to do so.
Those voters who supported Turnbull at the last election in the expectation that he will achieve increased economic growth and more jobs are fated to become increasingly disappointed with Turnbull by the time of the next election because the trickle-down and austerity strategies he has adopted make it inevitable that he will fail to satisfy those expectations. On that basis, it is pointless for the Turnbull government being allowed to continue any further.
[textblock style=”7″]
Like what we do at The AIMN?
You’ll like it even more knowing that your donation will help us to keep up the good fight.
Chuck in a few bucks and see just how far it goes!
Your contribution to help with the running costs of this site will be gratefully accepted.
You can donate through PayPal or credit card via the button below, or donate via bank transfer: BSB: 062500; A/c no: 10495969
[/textblock]
It is actually surplus energy that enables growth. Considering the destructive nature of growth, why has the author not questioned the need for it now that the surplus has been squandered?
All governments that pursue growth are doomed to fail and I have been saying so for a long time.
Cheers.
You cannot have unlimited growth on a finite planet. If the west grows then obviously the rest of the world can’t. How big is big enough?
Harquebus, perhaps he didn’t want to.
Y’s’re all right. All in all, there would be an infinitesimally small number of parliamentarians who would speak on behalf of a smaller, fairer and “sustainable” future. Sustainable is the most irritating and misused word in the MPs vocab. Kevin Rudd could use that word in the context of an Australia with 50 million humans. “Sustainable” also means “we can possibly be re-elected next time”. It also means “The number of humans that can be squeezed on a given area of land in the short term MINUS consideration of their long-term needs”, as well as “the use of all fossil fuels until they are exhausted because they are there”. It also means “The unlimited length of time short term medicinal and animal husbandry expedients such as antibiotics” can be used. It never refers to anything to do with the world of non-human inhabitants and their environments as these are useless and expendable (until we need them). Most importantly, it refers to the amount of money that should be expended on politicians during and after their term of office, no matter how large. These people are infinitely “sustainable” and MUST be welcomed and sustained by us. Some of them are angry right now because of our unfair attitudes.
“…Doomed to failure!”? The LNP has been a big failure since the Mad Monk took over and has now been one giant failure since Mal Feasance knifed the Mad Monk.
Trickle down doesn’t exist, the little person gets the last few drips as the big end of town stands on their high-rise balconies and shake their dicks after peeing in their solid gold toilets.
Unfortunately, the IMF came to the anti-trickle down party decades too late. Back in the 1970’s and 1980’s, when Friedman and his Chicago boys were infecting the world with neo-liberalism, they infiltrated the IMF too and for a long while, the IMF bought into the lie. You can of course see the genesis of Friedman’s ideas – the simple notion that markets work perfectly, without friction and always move towards the optimal distribution of assets. Sounds great – except it is a falsity. There are many, many things that create “friction” in markets – not the least being the pernicious advertising and marketing that makes us all ignore our needs and focus only on our wants.
In countries like Chile, Argentina, Bolivia, South Africa, Russia – anywhere there was a coup or the overthrow of an old regime, Friedman and his cronies were in there at the request of dictators; insisting that all state assets had to be privatised, price controls on food staples removed etc etc etc. And invariably, there too was the IMF, threatening to withhold financial support if those countries didn’t adopt the “economic shock therapy” advocated by Friedman.
Problem. The notion of neo-liberalism and the execution of those steps in various countries never actually worked for the people at large. Those neo-liberal steps made at the exhortations of Friedman and his wack job disciples did make a select few very wealthy, if not obscenely wealthy (think the Russian oligarchs) and keep many, many more in poverty for years and years. Neo-liberalism has always been a failure – if you look at society as a whole, but was a huge success if you joined the ranks of the wealthy.
But with the accumulation of wealth comes the capacity to exert undue influence over governments and this is where we come to modern day Australia. Those who have the ear of the current government are making sure that the government’s decisions are in the favour of the wealthy. This applies at all tiers of government.
Then we get to the “tragedy of the commons”, which is to say that for the wealthy, they enjoy the benefits of their wealth, but generally push the costs of their excesses onto society as a whole. For each individual, the result of the waste or environmental damage they produce or are responsible for producing is of relatively little consequence and since they generally don’t care about the broader costs to society and to the globe, there is no incentive to stop being wasteful.
A couple of other comments. One is that one reason the wealthy don’t spend as much of their incomes as the poor is that a lot of their wealth comes in the (unrealised) form of accretions to capital (shares going up in value, the $10.0 million harbourside mansion growing in value to $20.0 million and so on. The poor have few assets, so can’t really ever accumulate wealth and as a result the wealth disparity is as big, if not bigger than the income disparity and every time the share market goes up, the gap widens that bit more. But the tax system doesn’t tax wealth and if incomes are artificially reduce for tax purposes, the tax system is incapable of redressing this imbalance.
But one of the most evil results of neo-liberalism is a growing selfishness – not just among the mega-wealthy, but among the ranks of the middle glasses generally. It is this selfishness that has everyone lusting after bigger SUV’s, bigger houses, more elaborate overseas holidays, more electrical appliances including the mega-screen TV and so on. But it also means that people are listening when the government talks of leaners and lifters and they readily accept that the poor, disabled, indigenous and unemployed are all leaners and how dare they get paid heaps to sit on their asses all day, so the government manages to easily demonise those who are dependant on social welfare.
Roswell
Thank you. Here I was thinking that it was a lack of understanding.
Cheers.
Harquebus
you crack me up 😀
Michael Griffin – thanks for an interesting and informative critique of the absurd ‘trickle-down’ myth – a con actually, conceived and perpetrated by wealth and privilege. That the myth continues to beguile so many Australians perhaps says something about the down side of being an isolated former colony in southern hemisphere, sharing no borders with any other culture and thus has become inward gazing and myopic.
We are fast approaching the most opportune moment in decades to nail the TDE into it’s coffin for good. This will require a LOT of public education and proffering of evidence and, in the worlds of that highly esteemed scholar Malcolm Roberts, empirical evidence. It will have to be in a form the ‘Average Joe ‘n’ Josephine’ can easily understand. AIm it at those who are apathetic in regards to politics and governance. I am promoting the economic education of the ALP base – tradies, blue collar workers, shoppies &tc, as it will be THESE people who will determine who gets to run the economy in the future and they can in no way make those choices if not fully informed about the blatant IPA/LNP/Tory bullshit that has, and will continue to, decimate wage growth.
No better time will arrive for getting out the trickle-down message is bullshit (and the repercussions of it in direct relation to the worker’s pay packet) than when Truffles gets booted.
A Golden Oportunity is soon upon us. Let’s not waste it.
Politicians and their staffers will receive a pay rise from July this year, they will of course refuse to accept it as it will lead to a decrease in jobs. Well according to their logic. Pay cuts lead to more jobs therefore pay increases lead to less jobs. So if they accept these wage increases will this result in fewer politicians and staffers?
Ill fares the land. A fantastic response….in fact all fantastic responses. I guess the education of the masses referred to by Ian has already started and is what the writer Michael was trying to do anyway.
I wish “Ill fares the Land” could be reprinted as an AIM article so I could link to it. Great writing – clear and honest.
Ill fares the land …… you arguments and views are very apt. The trickledown bullshit that the conservatives and the dastardly media continue to propagate is having a deleteriousl effect on the general well being on the rest of those not fortunate enough to be included in top percentage of the wealth index Your last paragraph is particularly galling, that the ‘middle class’ have been so infected by their argument that they behave as if they are as entitled as the top 10%, to indulge in obscene displays of so-called symbols of wealth and prestige. Enter the $50000 ute with all the accessories, parked outside a double story macmansion with a picture pretty front yard. holidays to Europe and cruises on the latest and biggest and best floating Maharaja’s castle. And now they feel it is their just rewards for being who they are. Many many of them, employ tax evasion as a standard path to economic well being. What’s mine is mine, and bugger the rest. The rot started with little johnny, the man with the most inward looking perspective of society, a fervent acolyte of Margaret Thatcher. The result is there for all to see.
Neoliberalism also relies on the religious right to provide the moral justifications for the persecution of the poor and the vulnerable, who they portray as lesser human beings, who lack the character necessary to compete against the more deserving. Without their religious assistance, neoliberalism would be severely weakened.
It IS war! Guillotine Day cometh!
LIARS THIEVES & SPIVS. The LNP way. Born to Rule is the motto, but behind the mirror is written BORN TO UTTER FAILURE. Societies rise and fall through history on less than the combined offerings of Abbott the Deluded & Turdbullshit Governing disgrace. the revolution will definately NOT be on Television this time !
I would say, that problem started with Labor party. They are thoughtless spenders and they are the ones who create debt when they are in power. I remember the day when Liberal government with Costello as a finance minister paid off government debt. He probably smiled for the first and last time. Of course this debt was previously created by Labor. If Howard let Costello take over position of Prime Minister, Australia would be better off these days. Unfortunately Howard did not keep his promise and his popularity declined very rapidly. This was one of the reasons why Liberals lost their election and Labor had their spending spree again. Kevin 07 with the witch Gillard broke the record on national debt. Within few months all surplus of money was gone! Simply gone! What sort of bastards can do this! It is more then sure, that Labors have no idea how to run economy an they are ALWAYS disaster for Australia. Now, the Liberals won their election again and they struggle with this debt Labor accumulated to these days. I do not envy their role to clean the mess, Labor party left behind.
“I would say, that problem started with Labor party. They are thoughtless spenders and they are the ones who create debt when they are in power.”
The net debt of the General Government sector is $161,253 million at 31 August 2013.
https://www.finance.gov.au/publications/commonwealth-monthly-financial-statements/2013-08/
At 31 January 2017: Net debt is $323,821 million
https://www.finance.gov.au/sites/default/files/mfs-jan-17.pdf
In other words, since the Coalition took over they have increased net debt by about $4 billion per month
Gross government debt was about $274b when Tony Abbott won power in September 2013
Gross debt as of March 3 2017 $478.445 billion
Total government debt is now rising by $5.3 million an hour – or $126m a day – according to calculations performed by David Lawson, a commentator who runs the Australian Debt Clock website.
When the government reaches the $500b milestone – officially due mid-year but possibly sooner – it will raise fresh questions about the Coalition’s claim to be a more responsible economic manager than Labor.
the average annual increase under Labor was about $36b – but under the Coalition it has been closer to $60b a year.
The interest bill is currently around $16b a year and under the government’s own figures, gross debt is projected to reach $600b by 2020.
http://www.smh.com.au/federal-politics/political-news/scott-morrison-to-lift-credit-limit-as-australias-debt-hurtles-towards-500-billion-20170128-gu0iin.html
I would say the problem started with the out of control greed of banks that led to the GFC rather than the Labor Party who steered us through the crisis with what has been internationally accepted as wise economic stewardship, as opposed to their predecessor Howard who was the most profligate PM in our history, squandering the resources boom, locking in tax deductions for the wealthy and welfare for the middle class, and selling off our assets.
It was the Labor party who sold Commonwealth Bank, was it not? Many other banks were sold into private hands. Reserve Bank is in the hands of Rothchilde’s family so it is also private. Labor party happily sold everything within their reach. They were selling Australian land into foreigners hands instead leasing it. Labor party also let illegal immigrants to come to Australia and i remember these illegals were flooding this country. Luckily Liberals stopped this tsunami. As I say Labors are disaster for Australia. Liberals also have their problems but they are business orientated people in comparison socialist minded lay back Labors. You certainly have short memory Kay. It was Labor party who thoughtlessly spend money right after got their power in Government.
[It was the Labor party who sold Commonwealth Bank, was it not?]
Yep. It sounds like I’ve been way too lenient on Keating. He did of course help us modernise…and the LNP was clearly going to sell it anyway.
http://www.uq.edu.au/economics/johnquiggin/JournalArticles01/CBAPrivatisation01.html
You people seem to be missing the point…’pointless spender’ etc. There is no limit to the amount of spending the Australian government can undertake in Australian dollars as kit generates the Australian dollars and produces them and taxes do not spend government spending so the only way a debt can arise is if the government borrows in an overseas currency. The money collected from tax is disposed of and new money created every year. The government does not need to borrow Australian dollars as it is the only entity that can produce them. It cannot have a debt in Australian dollars unless it adopts a policy that government spending should be limited to the tax take but that is not an economic ‘law’ and no developed country in the world, other than Australia, adopts that policy and that is by the moron Liberals. The idea that there is a debt in Australian is a complete fiction. In other words, Labor did not create any debt. In any event, when Abbott came to power his treasurer Joe Hockey agreed the debt was only $11 billion after Labor had been in office. It is now $500 billion under the Liberals. How did Labor produce that debt? It didn’t because the Liberals did. They are the worst economic managers in history. Managing a business and household is not the same as managing a country with a sovereign currency as the government can produce however much of that currency it wants. You people will believe any nonsense you are told. Shame that in a democracy IDIOTS GET TO VOTE!
The problems is the liberals are borrowing vast amounts of foreign currecy – US dollars, Yen, Eurto etc – that is why the debt is rising so quickly. Thay are not producing Australian dollars. That will lead to a great problem. Loansd in foreign currency will need to be paid back in the currency in which it is borrowed not Aussie pesos. I belive this is a deliberate strategy by the LIberals to bankrupt Australia and then take advantage of that by obtaining public assets cheaply for themselves and their crony mates. Example, Mudoch will get the ABC for a bargain. I also believe that is why Turnbull has investments in Cayman Island funds. Those funds are ‘vulture funds’ basically. That means they pick off the assets of struggling buisinesses for low cost and then sell them on for profit. That is a liquidation strategy. That is liberal policy. Privatisation is basically a liquidation of public assets.
Halfbreeder
You are, in my understanding, 90% right.
I understand that Australia borrows only in Australian dollars, which means of course that debt denominated in Australian dollars is not actually a debt, as the gvernment can create as m7ch currency as it likes.
As for the RBA being a private bank – this is not true the RBA exists by decree of the RBA Act 1959, thus it is a government instrumentality.
Stephengb2014 i dont see any mention in the artical or replies about the RBA being a privately owned central bank. Please point that out as i may have missed it.
This is interesting:
“Paul Keating says neo-liberalism is at ‘a dead end’ after Sally McManus speech”
“We have a comatose world economy held together by debt and central bank money,” Mr Keating added.
“Liberal economics has run into a dead end and has had no answer to the contemporary malaise.”
http://www.smh.com.au/federal-politics/political-news/paul-keating-says-neoliberalism-is-at-a-dead-end-after-sally-mcmanus-speech-20170329-gv9cto.html
It took him many years to get it, I hope that Chris Bowen take note of this……..
My understanding is that the vast majority of foreign debt is from the private sector.
Bernie Frazer confirms the gist of this artical by Michael Griffin. Turnbull gov wont achieve its stated objectives of jobs and growth and is therefore ‘doomed to fail’. Put simply income = consumption = employment. Cutting wages and reducing corporate taxes will have no effect. https://www.google.com.au/amp/s/amp.smh.com.au/federal-politics/political-news/former-rba-governor-bernie-fraser-says-penalty-rate-cut-will-produce-inequality-not-jobs-20170406-gvezd1.html
Latest IMF report confirms cutting taxes to the rich does not produce growth as Turnbull claims. The gist of this article is confirmed. Turnbull’s mantra of jobs and growth is doomed to fail.
https://www.theguardian.com/business/2017/oct/11/imf-higher-taxes-rich-inequality-jeremy-corbyn-labour-donald-trump?utm_source=esp&utm_medium=Email&utm_campaign=GU+Today+main+NEW+H+categories&utm_term=247579&subid=22193978&CMP=EMCNEWEML6619I2
Michael Griffins article has proved to be correct. The slash and burn policies of Treasurer Morrison have producrd 1.7% growth, low wages and high under employment. The Australian economy is on the brink of recession.
Wonderful pick up there oppose.
With Morrison as Treasurer, LNP have failed to deliver on the promises they made at the last election.
well this turned out to be true