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The realities of Australia's future: two key books

By Syd Hickman - posted Friday, 7 February 2014


These two books work well together in explaining where Australia is headed. The first is global in scope and provides an excellent background for Ross Garnaut's study of Australia.

Alpert spells out the global economic convergence and its implications. Garnaut focuses on what that convergence means for Australia and how we should manage it.

Both should be read by anyone involved in shaping the nations future.

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The Age of Oversupply: Overcoming the Greatest Chalenge to the Global EconomyDaniel Alpert. (Portfolio/Penguin 2013)

This book by Daniel Alpert is very global realist. It is well written, the arguments are easy to follow without the oversimplification and repetition that such big-picture books often use. He produces some great numbers and he is talking about now, not speculating about the distant future.

Alpert is a very experienced US economist, banker and writer. He has worked extensively in Japan and also in China. He has co-authored work with Nouriel Roubini. I came across this book by reading the very highly regarded Martin Wolf from the Financial Times. Wolf had to admire the book while being unwilling to be so realist.

Alpert's basic thesis is that over the last thirty years nearly two billion workers have joined the global economy. They are eager to work and many have considerable education and skills. Their savings, plus the monetary expansion of the rich nations in trying to cope with financial crisis, has also resulted in a huge growth in global capital. As a result we are now experiencing oversupply of capital and labour. That has some vital implications.

The established policies of governments and central banks, of dropping interest rates or expanding the money supply by "printing money" or borrowing from foreigners to grow government spending, no longer work as they used to. There is too much money already available.

At the same time it is hard to generate profits in most industries because rich-nation jobs (and the high consumption they generate) are being transferred to poorer counties where the workers are paid less and save much more. In the global economy competition is fierce, taxes are hard to collect and government powers reduced.

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Alpert points out that according to economic theory we will eventually reach a new equilibrium that accommodates these workers and the extra cash, but that could take decades and would mean all the rich nations would have significantly lower living standards. If we fail to find good solutions there will be great pressure for bad ones.

My only problem with the book relates to one of the chapter headings. Alpert's final chapter is called, "In Pursuit of Pragmatism". It is actually about realism, not pragmatism, but we can forgive him making the mistake as the difference is only now being made clear.

His solutions include raising funding for health and education because they lift living standards and increase competitiveness while not being too directly in the line of global competition. He does not oppose Keynesian spending as long as it is used to increase competitiveness, not just to buy off consumers for a few more years. There are also many more specific ideas for reform of national and global economic management. He sees growing total wages as a share of the economy as basic to recovery.

The 'Age of Oversupply' is a fundamental text for the realist future.

Dog Days: Australia after the BoomRoss Garnaut. (Redback 2013)

As an analyst of the Australian economy Ross Garnaut is as good as it gets. Having advised Prime Minister Hawke in the early days of reform, and been Ambassador to China, he is much more than a theoretician or ideologist.

He can be faulted for having the non-global realist idea that population growth is inherently good, though he does admit to counter arguments. And he does occasionally take the rest of the world as a given rather than a set of changing realities, but that is forgivable in this book focussed on the current state of the Australian economy.

The book has three parts. First there is a brief history of world economic forces, such as China's emergence into the global economy, since the 1970s and Australia's economic policy responses. He focuses on the reform era of the 80s and 90s, then, as he calls it, 'The Great Australian Complacency'.

Part two is a series of policy prescriptions ranging from how to lift productivity and employment to ways to better mange the Federation, and finally what to do about climate change.

Part three attacks the failings of political parties, private sector leaders, Treasury and the general culture for the collective failure to see Australia's situation realistically or to pursue serious remedies to our impending problems.

The core theme of the book is the decline of the terms of trade since 2011 and their likely continuance, resulting in declining living standards for Australians. Garnaut argues we are inevitably going to get poorer and how well we manage that reality will determine how badly we are affected and who takes what share of the pain. He is appalled that governments of both sides spent most of the proceeds of the China boom as soon as they arrived and built up voter expectations that could only be satisfied if the boom continued for decades. His main solution is to drive down the exchange rate but there are many good ideas proposed in various areas of policy.

Notably he advocates following China in spending money on transition to the post carbon economy, providing present and future benefits for the economy.

He concludes with implications of dire consequences if we get economic policy wrong over the next few years. His analysis makes it clear this is the most likely outcome.

This is a readable book aimed at providing practical advice to government, and to people who think about these issues in realist ways. Alpert's book helps put Garnaut's ideas into a global perspective.

The thinking about our future is becoming clear, but action seems a long way away.

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About the Author

Syd Hickman has worked as a school teacher, soldier, Commonwealth and State public servant, on the staff of a Premier, as chief of Staff to a Federal Minister and leader of the Opposition, and has survived for more than a decade in the small business world.

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All articles by Syd Hickman

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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