Inflation and the making of macroeconomic policy in Australia, 1945-85

Everything you always wanted to know but were afraid to ask…

My PhD thesis is now available here.

Abstract

This thesis traces the impact of inflation on the making of macroeconomic policy in Australia between the end of World War II and the mid-1980s. I take issue with accounts of policy change that focus primarily on ideological change on the part of policymakers. Instead, I present policy as strategic activity within a complex, evolving economic system which is not centred on policy, and in which, therefore, policy does not have a monopoly on initiative.

I draw on Marxian state theory and Tinbergian theory of economic policy to explore why counter-inflationary policy emerged as an imperative for the capitalist state and how it came to play a dominant role in organising macroeconomic policy in general. I also focus in detail on the development of central banking in Australia, drawing on post-Keynesian structuralist monetary theory. The body of the thesis is divided into two parts, one dealing with ‘the long 1950s’ and the other ‘the long 1970s’. Both are treated as periods of transition, rather than of stable policy regimes.

In the ‘long 1950s’ macroeconomic policy was brand new, and the authorities had to build an effective system of macroeconomic management, sometimes against the active opposition of other groups. A contradiction developed between full employment and price stability, and the latter was prioritised because of limits set by the balance-of-payments under the Bretton Woods international monetary system.

The ‘long 1970s’ was a period of crisis and distributional class conflict. The break-up of Bretton Woods and the movement towards flexible exchange rates changed the form of constraint but continued to impose a counter-inflationary imperative. Monetarism provided an organising and legitimating principle for extremely restrictive macroeconomic policy and the abandonment of full employment as a policy goal, even though policymakers were sceptical of its propositions. Finally, I discuss the movement towards deregulation as something which strengthened rather than undermined the central bank’s power to pursue monetary policy.

Advertisement

The lucky country

The third annual report of the Workplace Research Centre’s Australia at Work project came out today. It’s a longitudinal study of the reported experiences of more than 6,000 workers. This year’s was bound to be interesting because it reports the effects of the ‘crisis’ over the last year. Apparently falling interest rates and petrol prices, as well as the stimulus package, have had a broader impact than un(der)employment:

The event that arguably had the most impact on the Australian economy and labour market in 2008 was the Global Financial Crisis (GFC) in October. While expectations that the Australian economy would go into a technical recession were unmet, the impact was felt through a rise in unemployment and reports of further reductions in working hours. However, this report finds that only small sections of the workforce have endured negative impacts from the economic downturn. Around 8 per cent of all respondents report losing a job in the last year, and around two-fifths of these people are now in a job. While the levels of job insecurity remain very low among Australian employees, there has been an increase between 2008 and 2009, from 7 to 12 per cent. Insecurity is higher among private sector employees, at 14 per cent in 2009.

There have been some positive changes that have resulted from the economic downturn. While reports of increased living costs peaked in the first half of 2008, the GFC saw Australian interest rates plummet, petrol prices return to previous levels and the Government distribute a series of stimulatory cash hand-outs. The ease on costs of living is reflected in respondents’ reports of living standards. The proportion of people finding it ‘very difficult’ or ‘difficult’ to get by on their current household income has dropped from 20 per cent in 2008 to 16 per cent in 2009. Correspondingly, those ‘living comfortably’ or ‘doing really well’ has increased from 41 to 45 per cent in the same period. [p. i]

For the love of it

I think I’ll be back writing here very soon, especially with this surprise Easter thing. (It was a surprise to me, anyway.) In the meantime, I just wanted to post this interview with Michelle Masse.

I’ve been meaning to write something about what’s been happening here on campus with a unionisation drive among casual academic staff. We had some minor victories last semester and hope for some big ones this year. It’s pretty exciting, I think. Now is not the time I’m going to do it. But I was struck this week – I filled in teaching for a sick co-worker this week. No worries, I could use the extra money. But the thing is, it comes straight out of her pay packet. We get no sick pay! Essentially, if we’re sick, we subcontract a co-worker. A few weeks ago I heard of a department at Sydney University in which people are teaching classes on a volunteer basis! That is, they don’t get paid; they’re doing it for the experience. Jesus Christ.

Anyway, watch Masse, courtesy Marc Bousquet of the excellent How the University Works. She makes a point Nate has often made, about the effect of academics seeing their work as a calling rather than a job.

E. L. Wheelwright, 1921-2007

Last year I wrote a bit of an obituary for Ken Buckley, one of the patron saints of Australian political economy. Now his collaborator, Ted Wheelwright, has died. Wheelwright was possibly the man most responsible for the department I study and tutor in: as a socialist lecturer in Economics at Sydney University, he became a bit of a cause celebre when he was blocked from professorship for the sixth time in 1975. This was right in the middle of the split in Economics that eventually led to a staff strike, an occupation of the Vice-Chancellor’s office, and a 4000-strong student walkout. Eventually Political Economy became an autonomous discipline in its own right. You can read the full story here.

Prof. Frank Stilwell, today’s chair of Political Economy, wrote the obituary for Wheelwright in the Sydney Morning Herald.

Incidentally, this is Political Economy’s last semester as part of the Economics and Business faculty. Next year we move to Arts.