Daily Bulletin


News

  • Written by Warwick Smith, Research economist, University of Melbourne

Lately, governments and oppositions have been obsessed with “returning to surplus” in order to balance the budget.

It hasn’t always been so. In the lead-up to the 1961 federal election, unemployment had climbed above 2% and was creeping towards 3%. (By today’s standards that doesn’t sound much, but for two decades since the onset of the second world war unemployment had been mostly well below 2%.)

The Labor opposition, led by Arthur Calwell, went to the 1961 election promising that:

Labor will restore full employment within 12 months, and will introduce a supplementary budget in February for a deficit of £100 million, if necessary, to achieve this.

From the end of World War II, there had been a bipartisan commitment to full employment in Australia. As laid out in the Curtin government’s 1945 White Paper, Full Employment in Australia, this was achieved by “stimulating spending on goods and services to the extent necessary to sustain full employment”.

The strongly held view, developed primarily by British economist John Maynard Keynes during the Great Depression, was that government could, and should, use its spending power to fill any gap left by private expenditure, ensuring there was always enough spending to keep operating near (but not above) capacity.

Spending stopped unemployment

The 25 years after World War II in which this happened are often referred to as the “postwar boom” because times were so good. This period had rapid economic growth, steadily improving material standards of living (for most), and falling inequality.

Involuntary unemployment was scarcely heard of. “Long-term unemployment” didn’t exist as a statistical category.

By focusing on keeping the Australian economy at or near full capacity and investing heavily in infrastructure, research and education to improve productivity, the postwar governments of both major parties were able to do what these days would be thought impossible: to run constant government deficits while overseeing a dramatic fall in the ratio of government debt to gross domestic product.

Memories. In 1961 Labor promised to boost the deficit to fight unemployment. The promise won Source: Australian Federal Government deficits, debt and the stock market, Centric Wealth What’s important to understand is that the postwar boom occurred, at least in part, because of the budget deficits, not in spite of them. By always spending enough to maintain the economy at full employment, the government ensured a strong economy. Economic growth made the ratio of debt to gross domestic product shrink. All of this was very much part of the public conversation back in the 1940s, 1950s and 1960s. Very little attention was given to the budget balance, with people instead focused on the level of unemployment. On the rare occasions the budget balance was mentioned, it was often in the context of pushing for greater deficits to reduce unemployment. Calwell won the fight, if not the election Memories. In 1961 Labor promised to boost the deficit to fight unemployment. The promise won After the 1961 election Robert Menzies made Arthur Calwell’s policy his own. National Library of Australia Calwell’s Labor opposition didn’t win the 1961 election, but there was a massive swing towards it and the result was one of the closest in Australia’s history, decided by mere hundreds of votes. The fact that unemployment had crept up towards 3% was a significant contributor to the Coalition losing 15 seats in the House of Representatives and control of the Senate. Immediately after the election, to shore up his position, Menzies effectively adopted and extended Labor’s policy delivering a 1962-63 budget that focused squarely full employment and brought down a deficit £120 million, £20 million more than Labor had been proposing. The debt burden shrank as GDP climbed By the end of World War II, government debt was 120% of gross domestic product total. This means that total debt was 1.2 times the annual economic output of the country. By comparison, today’s federal government debt is about 18% of GDP, a mere one-fifth of annual economic output. So, according to the modern political discourse on government debt, the postwar generations must have been terribly burdened by all of that debt, and governments must have had to show incredible fiscal discipline to pay it off, right? The answer will surprise many who have fallen for the modern rhetoric. Although each loan was paid off as if came due, the total stock of debt didn’t shrink, but the economy grew strongly, allowing the debt-to-GDP ratio to wither to the point at which it approached zero. Memories. In 1961 Labor promised to boost the deficit to fight unemployment. The promise won Commonwealth Treasury Australia’s budget history is one of modest deficits leavened with occasional larger deficits and occasional surpluses. It’s been entirely sustainable. Our postwar governments lived by Keynes’s dictum: Look after the unemployment and the budget will look after itself. The economy has changed a lot since then and we can’t simply copy the policies that worked for Curtin, Chifley and Menzies. But we can learn from them. The reality is that we don’t know how low unemployment could fall in modern Australia because we haven’t made any genuine attempt to push it below 5% for decades. Read more: Explainer: what is modern monetary theory? A modern-day policy commitment to full employment, along lines inspired by what we did after the war, could lift wages, reduce inequality, drive increases in productivity and, most importantly, provide full employment for the more than two million Australians who are currently unemployed, underemployed or discouraged attempting to get work. Treasurer Chifley summed up the goal this way in 1944: Our objective is not primarily social security, but rather the much higher objective of full employment of manpower and resources in raising living standards.

Authors: Warwick Smith, Research economist, University of Melbourne

Read more http://theconversation.com/memories-in-1961-labor-promised-to-boost-the-deficit-to-fight-unemployment-the-promise-won-115376

Writers Wanted

Why this Queensland election is different — states are back at the forefront of political attention

arrow_forward

Cervical, breast, heart, bowel: here’s what women should be getting screened regularly

arrow_forward

Will I or won't I? Scientists still haven't figured out free will, but they're having fun trying

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Prime Minister Interview with Kieran Gilbert, Sky News

KIERAN GILBERT: Kieran Gilbert here with you and the Prime Minister joins me. Prime Minister, thanks so much for your time.  PRIME MINISTER: G'day Kieran.  GILBERT: An assumption a vaccine is ...

Daily Bulletin - avatar Daily Bulletin

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Scott Morrison: the right man at the right time

Australia is not at war with another nation or ideology in August 2020 but the nation is in conflict. There are serious threats from China and there are many challenges flowing from the pandemic tha...

Greg Rogers - avatar Greg Rogers

Business News

AppDynamics Solves Visibility Gap Between Traditional Infrastructure and Cloud Environments

New Full Stack Observability Platform, Integration With Cisco Intersight Workload Optimizer and Cloud Native Visualisation Features Provide Cross Domain Insights and Analytics of Business Perfor...

Hotwire Global - avatar Hotwire Global

Why Your Small Business Should Bulk Buy Hand Sanitiser

As a small business owner, employee and customer safety is at the very top of your priority list. From risk assessments to health and safety officers, appropriate signage and proper briefing...

News Co - avatar News Co

How Phone Number Search In Sydney Can Help Your Business

To run a successful business, keeping track of your company and competitors are the major factors. With a lot of tools, available businesses have options to stay current. One way in which busine...

News Co - avatar News Co



News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion