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ScoMo, don't let these fockers hurt our economy

Peter Switzer
1 December 2015

By Peter Switzer 

One of my loyal readers tipped me off about a Yanis Varoufakis story in the SMH, where he said we’re heading for a recession. My stool pigeon suggested this needed a Switzer reaction and, as a former “rock star” economist myself, I reckon I’m the right person to take on the new age rock star economist/politician, who was Greece’s Finance Minister since the Alex Tsipras government.

When I taught economics at the University of New South Wales in the late eighties and early nineties, I was the political and business commentator for the Triple M network, when no one touched the M’s when it came to rock!

It was the time when Scott Morrison was a student of mine so it’s with this in mind that I give Scott (or ScoMo as his rock nickname is nowadays) some advice: “Don’t take your eyes off these Fockers and get on the front foot policy-wise and media-wise.” (I call them Fockers thanks to the Robert DeNiro film Meet the Fockers, where he motioned with his fingers to his eyes that he was watching his son-in-law, who was played by Ben Stiller and was clearly a drop kick!)

OK, let’s get to what Yanis said to the SMH. Here’s a summary and my reaction:

  • A recession is inevitable because weak local investment and the China slowdown will hurt growth. (My specific responses are in italics below: Investment now is weaker than the mining boom days but we haven’t seen what the lower dollar might do. China could stimulate more. What Yanis is talking about is not new news. Seven out of seven economists I surveyed three weeks ago had growth at 2.6% to 3.25% for 2016 and all thought 2017 would be better than 2016! So cop that Yanis, you rock star you!)
  • He did say that "the recession itself would not be the problem because some recessions are necessary. Some recessions are a bit like bush fires that clear out the forest, and help with the regeneration.” (This is pretty sensible stuff but it doesn’t make him right.
  • He said that after nearly 25 years without recession, Australia is facing the headwinds of weak global demand and too much corporate savings. Buybacks and dividends have gone to shareholders and re-investment has been low. 
  • China, which was driving global demand for resources, energy and capital equipment until last year, thought its role was "temporary", he said, but the rest of the world had been slow to recover from the global financial crisis. (This is true but it doesn’t prove that a recession is coming with other analysts tipping that low interest rates will create a long, slow, grinding higher recovery.)
  • Australia's transition from resource-related investment to a more balanced growth model was also taking more time than expected, he said. 
  • He thinks the shift in investment from mining to other industries has been slow. (He’s right but the Oz dollar only fell in the past year, so it’s only now starting to work its magic.)

The SMH article did not say when a recession will come, so he obviously did not put a time on it. If it doesn’t show within two years, then he’s wasting our time, making us unnecessarily negative and plain wrong.

The Oz economy hasn’t had a recession for nearly 25 years, which is extraordinary, so we are due for one. However, if Scott Morrison can use Budgetary policy wisely and the RBA’s policy of holding interest rates steady proves to be right because they guess the economy is improving, then Yanis will be wrong.

I could be competitively unfair and ask “why would we even listen to a Greek Finance Minister, let alone a man who was so discredited in his Eurozone meetings that many of the world’s leading economic ministers refused to take him seriously? But Greece’s problems were not his doing.

He inherited a basket case economy created by public sector cronyism, tax evasion and a country unprepared to modernize, which means adopting more efficient production processes.

He actually pointed this out but it doesn’t mean he will be right on the Oz economy and his predicted recession.

Scott Morrison has to lean against media negativity with great policy decisions. Also, he has to talk up confidence.

He has to eyeball the Fockers out there who would undermine confidence by showing that the new political leadership in Canberra comes with strong economic leadership too.

ScoMo must play with the force of Messrs Keating and Costello, who had their enemies and dissenters but, in the fullness of time, have been seen as very effective Treasurers. I don’t think either of them would have allowed a Greek Finance Minister to use the R-word without hitting him to the fence for six.

Go ScoMo, your economy depends on you!

 

 

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