Doing a little pontificating in one of those surveys for the media on where the economy is going, the final question was whether I wanted to add anything. So I added this, very much in the spirit of thinking aloud. I’d be interested in others’ views.
There is little leadership on the question of what adjustments need to be made to our economy to get it to thrive again. We’ve lost a lot of national income, export demand will be down for some time. So I suspect we need to do something a little like was done in the early Hawke years. We should try to share the burden of relatively lower per capita national income with some notion of equality of sacrifice.
But the point of this would be to expand growth as fast as possible. Further, we don’t have the ‘real wage overhang’ that characterised the early Hawke years that meant that the burden of restraint should be in wage restraint.
To me this suggests strong fiscal expansion for some time, particularly directed to those on lower incomes and those with children with higher propensity to spend. 1 This should be paid for with higher taxation where it has least impact on consumption, which means those on higher incomes, though ideally one would phase this in as it became macroeconomically sensible over time.
These thoughts are tentative. I’d like to see them critiqued and clarified in a debate. But not only is no one of any political authority speaking like this. The likelihood is that we head in the opposite direction with tax cuts for those who are best off, and austerity to pay for it.