Why Australians should not turn their backs on economists

Why Australians should not turn their backs on economists

Then prime minister Gough Whitlam at Trades Hall, Sydney in 1974 with future prime minister Bob Hawke. Whitlam brought economists into his administration, while the advice of experts guided economic policy during Hawke’s leadership in the 1980s. Photo: Rick StevensAustralia has just assumed the mantle of the longest unbroken period of economic growth in modern world economic history. And New Zealand is doing even better when it comes to keeping the budget in the black. You might say that each performance is the result of successful economic policies, but what of the influence of university economists?
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Most Australians, despite having a healthy appetite for economic news and living in a country where economic policy has a strong influence on nation-building, take a rather dim view of academic economists. Earlier the Australian historian WK Hancock once remarked that “the Australians have always assumed that economic problems are simple, and have resented those classifications and rewards which suggest that some men have a higher class of intelligence than those of the majority.” In that light Hancock observed that “Australians have always disliked scientific economics (still more) scientific economists.” In his book Australian Hopes and Fears (1958) Colin Clark, who had been isolated by the local economic profession for his iconoclastic views, quoted a comment by French geographer Andre Siegfried that “A mystery broods over this continent; and it will not be the economists who will resolve it for us.” Nearly sixty years on, Australian economists have solved that mystery.

Australian politics became more enlightened when prime ministers and treasurers, from Whitlam’s time onward, began to place academic economists within their private offices. In Whitlam’s case his administration was replete with academic economists. One of them, ANU economist Fred Gruen, infamously advised for the 25 per cent tariff cut of 1973 as an anti-inflationary measure. Another ANU economist Sir John Crawford drew up the blueprint for what would become the Industries Assistance Commission, now known as the Productivity Commission. Such was the number of university economists recruited by the Whitlam government that one university economist joked that there could be a study on “The economic consequences of economists”. In the 1980s the ANU again offered academic wisdom with Ross Garnaut and Peter Drysdale offering strong leads on promoting engagement with Asia. Bruce Chapman designed a viable way of funding universities and opening up pathways for more young people. Bob Gregory told Australians about how mineral resource booms would stretch, distort but ultimately benefit the economy.

Across the ditch in New Zealand, academic economics was not so penetrative. Prime Minister Robert Muldoon exerted a formidable presence on the economic landscape until 1984. He had little time for economists and dismissed economic theory with his remark “We can do without the disruption of academic theories which, because they are non-specific, seem to make sense until they are applied specifically to the real world.” In another instance, he spoke of having “no intention of letting efficient industries go to the wall for the sake of a theory.” He was emphatic that homespun, do-it-yourself-economics was best and felt that economics was little else than common sense. Big mistake! Muldoon was to leave the economy in a shattered condition, worse than he had inherited and forcing the need for radical restructuring.

We are now living through an era in which expertise is increasingly mistrusted. The outcome of last year’s Brexit referendum and the recent US presidential election convinced many observers that popular sentiment is superior to expert opinion. During the debate on Brexit one Tory politician, Michael Gove, urging the Leave case, declared “People in this country have had enough of experts???saying they know what is best and getting it consistently wrong.” It now appears though that the experts are being proved right with the Governor of the Bank of England saying Britain is heading for “a lost decade”. Sometimes democratic rights and economic illiteracy make things worse. In Australia, too, we now tend to shun university economists as out of touch know-alls. Yet, apart from the Whitlam and Hawke years there have been occasions in Australasian history, especially during the Depression of the 1930s and during the war years, when the recommendations of academic economists have made significant contributions to national prosperity. We should not forget the role of the long-time Governor of the Reserve Bank, Nugget Coombs, who led the crusade for an international Keynesianism which would make things easier for dependent, primary produce exporting countries like Australia.

In the postwar period both Australia and New Zealand rigorously censored what people could read and watch right up until the early 1970s. And it could be said that another form of censorship applied to the adoption of international economic doctrine and practice. Both countries, especially New Zealand, had import licensing from 1938 till the 1980s. Such was the inward-looking nature of both the Australian and New Zealand economies that they missed the post-war trade boom because of their protectionism.

It was in the 1960s that the first stirrings of a new economic model took hold in the tea-rooms of Australian university economics departments; that is to move their economics from a cost plus price structure to a flexi-one, from a closed economy to an open economy. It was a movement long in the making. At a conference on economic growth in 1962, Clark told his Australian colleagues how he felt sorry for them for having to teach “the current of popular protectionist sentiment” saying they had “avoided the unpleasant task of having to educate public opinion out of its prejudices.” He prophesied – correctly – that with all this neglect, Australian economists “are going to have to work extremely hard, and face a good deal of unpopularity, to catch up with their duty of educating public opinion.” This Australian economists did, but it took some doing. Max Corden of the ANU and a gathering of economists from Monash University spearheaded that campaign. Of course, some argue that it was not economic ideas that brings about change but the power of events. Possibly true, but as Keynes reminded us, it is ideas that rule in the long run. It is ideas that live on long after their originator has expired.

Alex Millmow is an associate professor at Federation Business School. His latest book A History of Australasian Economic Thought has just been published by Routledge.

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