My favourite quote when it comes to matters economic belongs to John F. Kennedy’s former senior economic adviser, J.K. Galbraith. As an economist, and a very celebrated one at that, even he understood the shortcomings of his profession when he said, “The only function of economic forecasting is to make astrology look respectable.”
So here we are at the start of 2016 and we begin to listen to the predictions of those learned people who eat economic data for breakfast. They digest it and then regurgitate it into something like the English language for we lay-people to try and understand. Sadly, the translation is often difficult to follow and then we wait for the next version to see if that means anything to us.
Trying to make any sensible translation of economic performance is indeed, for the most part, an astronomical task. Given the economic state of play right around the globe for the past seven to eight years, it is not too hard to imagine why many people are confused. It’s even harder to understand that for an economy that has grown and has been as resilient as the Australian economy that we hold our collective breath in anticipation of another tough year, or so we’re being told.
How much of our current economic predicament is a revenue problem and how much of it is a spending problem? That can depend on who you are listening to on any given day and what their status is or beliefs are – government or opposition, socialist or economic rationalist, realist or dreamer.
The latest set of graphs that have just been released to “provide a visual summary of the key drivers of the 2015/16 Mid-Year Economic and Fiscal Outlook (MYEFO), and the policy decisions underpinning them” are illuminating in many ways. A steady stream of revenue over the last 10-12 years, save for the glitch around 2008-10, is always met by a steady stream of spending. But are we spending wisely? And this is where the debate is most heated.
We just can’t escape the economic debate. It is at the core of our political system. The biggest difficulty I see is the political system itself or more to the point, the political cycle. It is to the subject of the political cycle that I now turn. So much has been made of the political instability which has confronted Australia in recent years. The instability has not been owned by just one party – it’s been an all-round effort.
I see a couple of major causes of the instability residing with our short-term political cycle and its intersection with mainstream media. It seems for the most part we’re all desperately trying to cling on to our popularity and often that means our jobs. That’s certainly the case of politicians and very few sit in the glare of the media more than the local pollie.
So when they are in government and they are part of the machinery that throws some bad news at us they begin on the back foot with a media ready to whip voters up into a frenzy. That’s just the way it works. Think about it, when was the last time we saw any semblance of alignment when it came to taking some bad medicine for the overall good of the economy? I cite a recent example such as medical co-payments – no pun intended. Whether you believe that was good policy or not, you had to ask yourself who was running the country?
Is it time in this country to have a serious look at the political cycle? Maybe we would be better served by re-examining the whole political system. The world’s moved on but the one thing supposedly running it hasn’t. For the business owners and operators in our industry, there is no doubt that there are fundamentals that underpin their operations but there is no way know that they haven’t made changes to keep pace with the dynamic environment in which their business is now operating.
In terms of the political cycle in Australia, the only parliaments facing three year election cycles are Queensland and Federal. The remainder of the country has moved to four year cycles notwithstanding some flexibility in a couple of those jurisdictions. Two of our more closely aligned international democracies, the United States and the United Kingdom face the voters in general elections each fourth and fifth year respectively.
Would we be better served by a longer political cycle at a Federal level? My gut feel is yes and there would be a raft of others who would say no and what’s more they would argue we don’t want to be run by a bad government for any longer than is necessary. Who could argue with the latter? The deeper question is what makes governments bad. Are they bad at the start or do they lose their way in responding to the short-term political cycle that turns everything into a popularity contest?
If, as appears to be the case, a vast majority of the populace is sick and tired of the recent political turmoil then at what point do we move toward a new model to deal with a rapidly changing environment? Certainly the business community needs a much stronger sense of stability to more confidently build momentum and invest. They don’t need to keep second-guessing on the economy and spending commitments that should be aimed at productivity.
We now sit in a Federal election year. The economic news is still of volatility and uncertainty. Perhaps it is the right time to eliminate some of the astrology from economic forecasting being impacted by political machinations and seriously consider modernizing the political cycle to better fit contemporary society.