By Dennis Glover
Recently a friend showed me the template of a graph currently circulating within one of Australia’s best-funded think tanks. It was titled “Framework for prioritising economic reform”. The vertical axis plotted the estimated additional GDP from any given proposed reform and the horizontal axis the degree of confidence it could be successfully implemented. GDP x Confidence = Correct Policy, I guess. Following (the other) Mr Keating’s classroom scene from Dead Poets Society, I told my friend to take the graph and rip it up. Itâ€™s the sort of economic nonsense that makes your humanity want to rebel. Economics is about more than mathematics, which is something the left wing American economist Joseph Stiglitz understands.
Stiglitz has been visiting Australia and he’s the hottest ticket for the Labor Party’s young thinkers. So he should be: not so much because he’s an economist but because he’s a moralist. It’s not his numbers that are compelling, but his purpose and message.
Stiglitz arrays powerful economic data and arguments to show greater equality raises GDP and benefits all. But you get the sense it’s not the maths that really grounds and drives him – it’s an intense moral outrage over what one-sided “economic reform” has done to the social fabric of the United States.
Anyone wanting to understand this should read not just Stiglitz’s book, The Price of Inequality, but also George Packer’s new best-seller, The Unwinding: Thirty Years of American Decline, which could be read as a companion volume.
Packer, a writer for The New Yorker, tells stories which plot the social death that has followed the cancer-like spread of industrial foreclosure, smaller government and labour union disappearance across the US over the past 30 years.
Replacing jobs in steel mills with jobs in Walmart may have cut the price of consumer goods, but the social consequences have been horrifying; only a narrow maths-obsessed economist could possibly think otherwise.
What I suspect most drives Stiglitz isn’t the potentially positive consequences for GDP of equality, but very the idea of equality itself. For Stiglitz, equality is an ends and a means simultaneously.
This is in total contrast to the sort of economic thinking that still dominates economics here, including in some parts of the ALP. It tends to take two forms. The first is summed up by the slogan “We have to grow the pie before we can slice it”. Purporting to be pragmatism, this too easily becomes a form of doublethink. How do we grow the pie so everyone gets a bigger slice?
Have a guess: smaller government, lower marginal tax rates, fewer unions and, perhaps, greater inequality.
The second is the sort of mathematical purism favoured by the followers of another Nobel laureate, Gary Becker. For these people, it’s the beauty of the numbers that really counts. Just like the “grow the pie” brigade, they claim to believe in equality, but you get the distinct impression that if greater inequality produced better numbers, they’d choose the numbers every time.
As John Edwards has recently argued, Australia’s economic thinking is stubbornly stuck in the 1980s, and this lack of a proper moral dimension to economic policy is yet another example. Itâ€™s all about reform and competition and belt tightening. The sort of big economic questions that ground economists like Stiglitz – “who actually tightens their belts?”, “who benefits? what are the implications for democracy? – and “what sort of society do we want anyway?” come second or nowhere.
Here’s the problem for Labor: as a social-democratic party founded to pursue equality, these moral questions must come first. Moral reasoning must drive Labor’s economics, not the other way round, especially now, when rising inequality is starting to have consequences across the globe.
This isn’t an argument for Labor’s young policymakers to abandon economics, but a challenge to them to become more assertive about equality and more articulate about morality.
In the Keating era, taking morality and equality seriously got you branded as a wimp; but the Keating era is over, and it’s time for the wimps to kick the sand back in the bullies’ faces. Joseph Stiglitz has done it; can the next Labor generation?