On the surface, the Abbott Government is returning the country to economic rationalism — the notion, motivated by a deep suspicion of government and its capacity to pick winners, that sound government policy is a case of: 'Don't just do something, stand there.' Any government interference in the price mechanism is deemed to be inevitably counterproductive and to reflect the capture of vested interests.
The view that the price mechanism is sacrosanct, and that any interference in it from government is sacrilegious, is the biggest circular argument in economics, a discipline riddled with circular arguments. How do we know the value of something? The price mechanism. What is most valuable? The price mechanism.
It produces some amusing political pantomime. The Government is on the one hand arguing — most notably with the SPC Ardmona case, the exit of the car manufacturers and Qantas — that it will not get involved in supporting Australia's industry base. But then it argues that its policies will boost Australia's industry base. Lower unemployment will inevitably follow. For the first time ever it is apparently possible to have it both ways. 'We are not going to do anything because that would be wrong, but at the same time we are doing something quite brilliant that will save the economy.' War is peace.
Such nonsense has become the norm in this era of deregulation and neo-liberal economic thought. Australian treasurers have been reduced to mere marketers of their bureaucrats' policies, trying to put the best spin on the fact that they don't do much. Interest rates are set independently by the Reserve Bank, and treasurers are simply required to balance the Budget as best they can.
They do not have much room to move. Fluctuations in tax receipts are largely out of their control and they cannot slash government spending without doing excessive harm. Any budget deficit was characterised as evilly irresponsible before the last election; now it is just something we all have to accept.
The other important element in the economy, the level of the currency, is also outside their control. It is set by forces far larger than the Australian Government (the Australian dollar is the fifth most traded currency in the world, far out of proportion to the size of the Australian economy). So governments tinker and try to make out that they have a great vision for the nation's future. Small wonder politicians are held in