Econobabble

How to Decode Political Spin and Economic Nonsense

Richard Denniss

• Publisher: Black Inc.
• Year: 2021
• ISBN:
  9781925203806
• Topic: Economics
• Subtopic: Economic Conditions
• Index: Economics

Economics is like a tyre lever: it can be used to solve a problem, or to beat someone over the head. What is econobabble? We hear it every day, when politicians and commentators use incomprehensible economic jargon to dress up their self-interest as the national interest, to make the absurd seem inevitable or the inequitable seem fair. This book exposes the stupid arguments, bizarre contradictions and complete lack of evidence upon which much 'common sense' about the economy rests in Australia. Econobabble is for those who, deep down, have never believed that it makes sense, economic or otherwise, to help poor people by slashing public spending on the services they need. It's for those who have a sneaking suspicion that it would be cheaper to avoid the effects of climate change than to let them happen and then 'adapt'. And it's for those who think pitting public health and aged care against the economy is a false dilemma, one that's short-sighted, callous and potentially dangerous.In this new edition, Richard Denniss demolishes the tired and misleading arguments of right-wing economic 'experts' with humour and precision, empowering you to cut through the babble and reach the truth.'The best guide you'll find to the literal non-sense that usually passes for economic debate in this country.' —Ross Gittins

1.

The Language of Deception

Before taking on the role of ‘managing the Australian economy’, Scott Morrison worked in tourism marketing. Malcolm Turnbull was a lawyer. Tony Abbott dabbled in journalism and the priesthood, Ben Chifley was an engine driver and John Howard was a suburban solicitor. Paul Keating managed a rock band. You do have to be a lawyer to become attorney-general, but you don’t have to be an economist to be the prime minister. Indeed, you don’t even have to be an economist to be the treasurer.

Although most politicians have no training in economics, and sometimes lack even the most superficial knowledge of how the Australian economy works, they are often highly skilled in using economic language to bamboozle or silence the public. They use words like productivity when they mean profit. They say things like ‘The economy is overheated’ when they mean ‘I don’t think we should increase the minimum wage’. And they say things like ‘We need to balance the needs of the economy and the health risks to our population’ when they mean ‘I would be happy to see more people die if we can boost the profits of the retail and tourism industries’. Words matter.

Economics is far more complicated than political slogans such as ‘Jobs and growth’ suggest. Until recently, conservative politicians in Australia argued that budget deficits were proof of poor economic management. For example, Tony Abbott was elected in 2013 on a promise to fix what he called a ‘budget emergency’, and Josh Frydenberg declared in April 2019 that the Commonwealth budget was ‘back in the black’ – but after six Coalition¹ deficits in a row, COVID-19 hit and they delivered the biggest budget deficit in modern Australian history and (rightly) said it was no big deal. The power of econobabble is such that the Coalition still claim to have some unique skill in managing the economy despite failing spectacularly according to their own (baseless) criteria.

Questions such as ‘Should we have a deficit or shouldn’t we?’ and ‘If we are going to have a deficit, what should we be spending more money on?’ don’t have simple answers. And most importantly, economics is no better placed to tell the public what we should, or shouldn’t, be spending money on than it is capable of predicting what will happen to the economy next year. As the famous economist J.K. Galbraith once said, ‘The only function of economic forecasting is to make astrology look respectable.’

But despite the demonstrated inability of economists, Coalition politicians or indeed anyone to make accurate predictions about what will happen to the economy with and without certain policies, our elected representatives continue to spend a mountain of public money buying such forecasts and models. They might as well seed clouds or buy lottery tickets.

Catholic priests used to say mass in Latin, knowing full well that their mostly uneducated audiences had little idea what was being said. But the purpose of such sermons was not to explain or persuade. The purpose was to silence. How can you disagree with something you don’t understand?

Economists often speak in Latin and Ancient Greek. We love to wear folk down with a few deltas and gammas, before finishing them off with a bit of ceteris paribus. One of our other good tricks is to use words that sound like English but which have very specific meanings in the field of economics. We use simple-sounding words like efficiency and unemployment to draw the unsuspecting in. Then, when they admit to thinking that unemployment is measured by the number of people on the dole (it’s not), or to thinking that efficiency means reducing waste (not to economists it doesn’t), we slam the door on their fingers.

To be clear, I’m not suggesting for a minute that only economists should be allowed to be prime minister or treasurer, or to run a business. That would be as dangerous as it is undemocratic. My point is that the vast majority of people who talk confidently about ‘what the economy needs’ have no more knowledge of economics than the average citizen. What they possess is confidence, not credentials.

The primary purpose of the econobabble that fills our airwaves is to keep ordinary Australians out of the big debates about tax, fairness, climate change and the provision of essential services. Like the congregation at a Latin mass, they can’t follow what the high priests are saying. And that’s just the way politicians and so-called business leaders like it.

ECONOMICS IS MORE FREQUENTLY USED TO CONCEAL THAN TO REVEAL

Australians are among the richest people to ever live, and collectively we are far richer now than we were forty years ago. But such is the power of econobabble that although we were told how lucky we were that our great economic managers delivered nearly thirty years of economic growth in a row, we were simultaneously told that we couldn’t afford to have the high-quality public services that we used to have. It gets better: when the economy was growing strongly in the 1990s and 2000s, we were told that we ‘couldn’t afford’ to spend more public money on policies like free childcare, but when the economy collapsed during the COVID-19 crisis we suddenly could afford it! I told you econobabble was powerful.

But while econobabble is a great way to conceal the options we really face, and the real motivations for the choices our elected representatives make, it is a terrible way to have a constructive, inclusive public debate about options, priorities and trade-offs. What it does do well is stifle debate, and confound and confuse Australians. That’s the reason we hear so much of it.

Like any discipline, economics has its own professional language – jargon – which can be used either to speed up conversations between experts or to keep the uninitiated out of their deliberations. When non-economist politicians use economic jargon while talking to non-economist voters, you can be pretty certain what their objective is.

Just as a patient having a heart attack in an emergency ward is unlikely to understand what the doctors are saying to each other, so too someone listening to two economists argue about the shape of the yield curve and the likely effectiveness of monetary policy will miss the significance of much of what is said. But once the crisis has passed, a good doctor also knows how to use an entirely different vocabulary to explain to the patient what happened, what was done about it, and what it all means for the patient’s future.

Anyone who really understands their subject matter can explain it to someone else. If they really understand it. And if they really want the other person to understand it too.

Like economics itself, jargon isn’t dangerous. But econobabble is used to limit the menu of democratic choices that we are offered. Politicians rely on it to make themselves seem smart and to make the public feel dumb. In recent decades, the strategy has worked a treat in convincing the majority of the population to accept inherently unpopular policies like privatisation and tax cuts for the very wealthy, but it has clearly been far less successful in delivering low unemployment, high-quality services or solutions to problems like climate change.

WHAT THE HELL IS THE HANG SENG?

If elected leaders are to tackle big problems on our behalf, we need them to identify those problems clearly, explain the different options for fixing them, and build a case for their preferred response. It’s simple stuff, and it is the opposite of relying on econobabble to conceal problems, options and consequences.

But it is not just the politicians who need to change. Policy advocates, the media and the voting public all have to admit some simple truths. Let’s start with an easy one: almost no one knows what the Hang Seng Index is.

The Hang Seng is an indicator of the financial performance of the companies listed on Hong Kong’s stock exchange, which is Asia’s third-largest. Almost no Australians know that, or care. And we can be pretty sure that anyone who does actually know about such things will not be tuning in to the nightly television news to find out what happened to their investments that day. So why do television stations waste their time on such indicators each night?

Presumably for the same reason that economists speak in Latin. The Hang Seng – and other similar indexes, such as the ASX 200, the Nikkei and the Dow Jones – are there to remind us every night that there is much we don’t understand. Its role is to silence, not to inform. There is nothing to stop our news broadcasters from providing nightly updates on inequality, hospital waiting lists, greenhouse gas emissions or childhood obesity rates. But instead of providing Australians with a regular flow of information that they care about, they bombard people with data they neither care about nor understand. It’s an old trick, but it works.

MARKETS DON’T HAVE FEELINGS – RICH PEOPLE HAVE FEELINGS

The overwhelming majority of Australians think that we should spend more money on health, education and public transport. The vast majority of us also believe that Apple, Google and Gina Rinehart should pay more tax.² Nearly everyone agrees that big corporations should be banned from donating money to political parties,³ and that the federal government should create an anti-corruption watchdog.⁴ We live in a democracy, yet the fact that most of us want these changes is not sufficient to achieve them. ‘Business leaders’ tell us that we can only consider such changes after we ‘consult the markets’, or after we get the budget into surplus, or … just not now.

The high priests of econobabble often tell us that ‘the markets’, like the gods of cultures past, can be angry. They can be vengeful. And they can punish nonbelievers. We must consult them cautiously. Tony Abbott once supported holding an inquiry into the impact of mining companies’ decisions to double their iron ore production on the price of iron ore. However, a week later, after pressure from those same mining companies, he told us that to even inquire into the fall in the iron ore price might spook the markets, and stated that ‘the last thing this government would ever want to do is interfere with a free market like the iron ore market’. Especially after the mining companies tell us not to, it seems.⁵

The government was similarly deferential on the issue of a royal commission into the behaviour of our big banks. Right up until the big banks themselves wrote to Malcolm Turnbull suggesting he should hold a royal commission into their failings, the then prime minister and his whole front bench were adamant that to merely inquire into the banks would invite the wrath of ‘the markets’. In the words of the then treasurer, Scott Morrison, the calls for a royal commission were ‘nothing more than crass populism seeking to undermine confidence in the banking system, which is the key to jobs and growth in this country’.

As it turned out, the big banks were guilty of stealing from dead people, exploiting intellectually disabled people and failing to meet their obligations to detect money laundering. While the process was excruciating for a large number of bankers and regulators, the sky didn’t fall in and the economy was not ruined. While bank shareholders might have been angry, the financial markets coped effortlessly with the damning findings of Justice Hayne.

While markets are real, it is absurd to suggest that they have ‘feelings’, ‘needs’ or ‘demands’. Markets are a place where buyers and sellers of a product come together. It might be a physical place like a fish market, or a virtual place like eBay or a stock exchange. But regardless of their form, markets never have feelings. Ever.

Rich people, on the other hand, do have feelings. And rich people who own billions of dollars’ worth of shares in a company often have very strong feelings. They have feelings about government policies, and they have feelings about tax rates.

But the feelings of rich people are quite different to the ‘feelings’ of the market. Consider the following example, which shows how effectively economic language can conceal what’s actually going on. Both the following reports describe the same event:

Markets reacted angrily today to news the government is considering tightening thin capitalisation provisions, which have provided foreign investors with strong incentives to expand their Australian operations.

Rich foreigners reacted angrily today at news that they might have to pay tax on the profits they earn in Australia. After the government announced that it was considering clamping down on some of the most lucrative forms of multinational profit-shifting, some very wealthy Americans threatened to take their businesses away from Australia if they were forced to pay tax.

Words matter.

Here’s another one. Let’s replace the words ‘the economy’ with ‘rich people’s yacht money’:

Sure, we could invest a lot of public money in renewable energy, but think about what that would do to rich people’s yacht money.

Yes, Australia could spend as much on health and education as Norway and Sweden, but have you considered what that would do to rich people’s yacht money?

The reason we have to cut taxes is that it will be good for rich people’s yacht money.

Governments and citizens should be concerned about the impact of changes in government policy on businesses, employment and the distribution of income. But the notion that Australia, one of the richest countries the world has ever known, can’t change its laws without consulting with ‘the market’ is as absurd as it is alarming. In effect, we are regularly being told by our own leaders that Australia can’t change its laws unless some very rich people, most of whom live in other countries, say it’s okay for us to do so.

The trick only works when, like a monster in a horror movie, ‘the market’ seems close enough to be threatening but not so close that we can see it is made of papier-mâché. The vague, lurking but formless presence of ‘the market’ is far more ominous than reports about what happened to the weighted average price of shares in South-East Asian stock exchanges today (AKA the Hang Seng).

The nightly news gives us a regular reminder that ‘the market’ is watching and judging us. It might seem common sense that if we collected more tax, as they do in Norway, we could have health and education systems just as good as Norwegians have. But econobabble limits the options in front of us. ‘What? You want to spend more money on health and education? Just imagine how the market would react to such a suggestion! You must be mad! You must not understand economics!’

Of course, in reality the market doesn’t want anything. The market doesn’t judge us, or anybody. The market is a metaphor, and it can no more judge our actions than Zeus or Apollo. The really scary question is whether or not the people going on about ‘market sentiment’ know this. As the saying goes, the best patsy doesn’t know they are a patsy.

Whether the econobabblers are talking about ‘what the markets want’ or ‘what the economy needs’ or what a ‘responsible government must do’, their language...