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.