The response to Labor's Global Financial Crisis legacy by the Coalition and the mainstream media has been to misrepresent, mislead and malign. Alan Austin exposes all the lies.
The Rudd legacy — 8 years on (Part 1)
EIGHT YEARS ago this month, Kevin Rudd’s Labor Government implemented the world’s greatest stimulus response to the Global Financial Crisis (GFC). This has been viciously attacked ever since by the Coalition parties and the mass media.
We can now expose most of the lies about how Australia – alone in the developed world – was rescued from deep recession, widespread job losses and suicides in the hundreds — if not thousands.
Falsehood # one: The GFC was a northern hemisphere phenomenon which did not affect Australia
The GFC whacked New Zealand, Singapore, South Africa, Brazil, Chile, Argentina and other southern nations just as badly as northern ones. All those nations experienced at least a year of deep recession and the associated human misery.
Australia copped one of the worst early onsets. Gross domestic product (GDP) growth plummeted from positive 0.8% in the 2008 third quarter to negative 0.7% in the fourth. The USA and the Euro Area only slumped to -0.3% in their first negative quarter, and Japan to just -0.1%.
Unemployment shot up from 4% to nearly 6% in early 2009. From June to December 2008, the stock market lost 40% of its value. It was because Australia was hit so severely early on that PM Rudd took such extreme action — as it was then perceived.
The lie that Australia was never affected was formulated well after the events.
At the time, economists were acutely aware of the vulnerability. Chris Richardson from Access Economics said in early 2009:
"What is happening internationally is absolutely diabolical .... Nothing Australia can do will stop recession here because it's recession everywhere.”
Falsehood # two: Strong banks saved Australia
Two porkies in this frequent assertion. The first is that Australia had uniquely well-regulated banks. It didn’t. The World Economic Forum’s annual competitiveness report scores all countries on "soundness of banks". In 2007, Australia’s world ranking was 8th out of 125 countries. Not bad, but not in the top seven.
Now here’s the thing. Those countries leading Australia on bank security all copped devastating recessions. Switzerland experienced three negative quarters of GDP growth, Sweden four, the United Kingdom, Denmark, Luxembourg and Canada five, while Ireland – with banks ranked fourth best in the world – had eight.
Intriguingly, when we go to the tail of that table, five of the bottom six – Timor-Leste, Algeria, Kyrgyzstan, China and Tajikistan – escaped recession completely. Maybe there’s an inverse relationship. But the Liberal lie persists.
Falsehood # three: Money in the bank averted disaster
According to the Liberal Party’s David Alexander:
“The pre-existing strength of the Australian government’s finances were to prove a bulwark against the economic storm ...”
The evidence – which Alexander, of course, hasn’t examined – supports the opposite view. The IMF’s database shows nine countries had net money in the bank in 2007 (besides a few small oil-rich republics and poor African states). These were Australia, Bulgaria, Chile, Denmark, Estonia, Finland, Kazakhstan, Norway and Sweden.
If negative debt was a cushion, then these should all have survived the GFC admirably. They didn’t. Bulgaria, Kazakhstan and Chile all suffered three quarters with zero or negative GDP growth. Denmark and Sweden suffered five negative quarters. Finland – which had net savings ten times Australia’s level – experienced six negative quarters. Norway went into the GFC with a phenomenal net position of 138.8% of its GDP in the black — 19 times Australia’s modest 7.3%. Yet it suffered one of the most entrenched recessions in the world. Estonia fared even worse, with seven negative quarters.
So all nations that went into the GFC with no net debt suffered particularly badly. All except one.
Falsehood # four: Australia was saved by its budget surpluses
Again, the evidence is against. Denmark, Spain, Finland, Iceland and Chile all had strong surpluses in 2007-08, yet suffered severe reversals. In contrast, India, Israel, Poland and the Slovak Republic all had deep deficits, yet emerged pretty well.
Falsehood #five: Trade with China did the trick
Arguing that ‘The China Syndrome is often cited as the single most important reason the Australian economy weathered the downturn’, Phil Dobbie asserts:
‘In 2008, the year the crisis hit, China absorbed AU$32 billion (or 15 per cent) of Australia’s exports, an eight-fold increase in 10 years.’
Wow! 15%. Sounds impressive. So what happened to Japan, which exported 16% to China? Japan suffered five negative quarters and blew out its debt by 26.4% in two years. What happened to South Korea which exported 22% to China? Another deep recession. Same with all China’s other big customers — Germany, Taiwan, the USA, Malaysia, Russia and Brazil. All except one.
Falsehood # six: Iron ore reserves saved Australia
The Australian has hammered this furphy relentlessly for eight years. Again, without looking outside Australia. When we do this, it collapses.
Other iron ore exporters are Brazil, South Africa, Ukraine, Canada, Sweden, Netherlands, Russia and Chile. Every one of these copped at least one year of recession and debilitating job losses.
Falsehood # seven: Most of the stimulus money was wasted
Sinclair Davidson writing for the Institute for Public Affairs claims:
‘It is very unlikely that Australia will have much to show for all that [2008-09 stimulus] spending, but Australia did avoid a recession.’
Two answers to that. First, the extensive infrastructure and productive assets built through the GFC include new roads, rail, ports, energy and water infrastructure, school and community buildings, social housing, defence housing, national parks, insulation and hot water units in sports facilities. All these are still there, and most are either earning money or saving money.
Second, it built the best-performed economy the world had ever seen. By 2010, Australia was the clear leader among world economies on GDP growth, jobs, exports, low debt, income and wealth.
The frenzied focus on the minuscule waste in spending $52.4 billion missed the point. Yes, auditors found some school buildings cost more to finish than had more time been taken. But even those few cost overruns pumped liquidity into the local economy, boosting activity.
To say some school halls could have been built more cheaply if the government had taken more time is like saying John Howard could have bought twice as many guns for his $500 million in 1996 if he had gone to the second hand market in the USA. Both deliberately miss the essential point of the exercise.
Falsehood # eight: Rudd’s rushed insulation scheme killed young Aussies
As shown in this submission to the pink batts royal commission, fires and fatalities during the GFC fell to one quarter the rate prevailing during the Howard years. Overall, industrial deaths fell dramatically during the Labor period, compared with Coalition periods before and since.
This is the most tawdry of all the malicious anti-Labor attacks — using tragic fatalities to make an entirely false political point.
Overall, the exercise by the Coalition and the mainstream media has been to misrepresent, mislead and malign. Will it continue to succeed?
Read Part 2 here. Part 3 coming soon.
You can follow Alan Austin on Twitter @alantheamazing.
Professor Joseph Stiglitz applauds Rudd Government from stopping Australia from going into recession during GFC.
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