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[00:00:00] Well, I'll just give you a few comments on the national accounts. The first thing to say is that the accounts do show that Australia is in a recession. The most important thing about that is that this is a recession that Australia had to have. This is the Debunking Economics podcast with Steve Keen and Phil Dobbie. The recession Australia had to have. Probably Paul Keating's most famous quote, but I wonder if he regales from that now, or maybe he's still proud of it.
[00:00:29] An age old principle that if you want to bring down inflation, you have to get people to spend less and put the economy into reverse in the process. And yet for many from the left, they still see Paul Keating as a bit of a hero. Well, maybe a hero for the right, perhaps. What is it about Paul Keating that makes people love him so much? And did he do anything right for Australia? That's this week.
[00:00:58] So Steve, I've just come back from watching Jonathan Biggins playing Paul Keating in a show which has been doing the traps for a while. I'm now in Australia. I've just seen it in Parramatta, the Gospel According to Paul, which is basically Jonathan Biggins. He must say he does a fantastic Paul Keating. And it's just Paul Keating talking about his life and obviously how fantastic Paul Keating was. Absolutely.
[00:01:24] As far as Paul Keating is concerned, which we know is obviously where he comes from. But was he that good for Australia? Yeah. He achieved some things. He caused a bit of damage as well. But he's seen by many as being Australia's saviour, that we were a bit of a backwater.
[00:01:46] We were associated too much with the UK. We needed to internationalise. And, you know, he introduced the reforms that are necessary. Of course, we had the recession that we had to have to try and get all that inflation down. Most people would have said, actually, that was a pretty bad recession. But even that, he seems to have got off with being, well, it was necessary simply because he said it was the recession we had to have.
[00:02:15] I mean, what were they before? And I know you're going to love this because I know you're not a particularly big fan. So let's start with a difficult question. What did he get right? Oratory. He's a great orator. Yeah, he was. And that's the reason he's still spoken about, because he had a brilliant turn of phrase. He still does. And he can intimidate and dominate the parliamentary forum like nobody.
[00:02:43] I mean, the only person who comes close to him is actually the person he's most contrasted with, and that's Whitlam. They're both absolutely brilliant parliamentary orators. And I remember hearing various ministers talking about what life was like under Hawke. Hawke had an emotional side that most Labour Party politicians can't touch. And I've actually got some inside information on that I'm happy to share later about why Hawke had such a hold over the Labour Party in general,
[00:03:12] because most of them didn't have the capacity for emotion that Hawke had. But Hawke was nothing like the orator that Keating was. So he could bash the other side brilliantly, and he still does, and he's still doing it. But on economics, he made the mistake of reading an economics textbook and not realizing it was full of shit. Yeah, the most classic one, of course, was when John Hewson asked him why he didn't call an election straight away if he was so sure that he was going to win it.
[00:03:41] And his answer was, because I want to do you slowly. I want to do you over slowly, was his line. And at the same time, I mean, again, this is speaking from how I think Hewson has made this public. But he also told me in conversations at Sky News that after we was walking through the halls of – this is John Hewson, who is, for those who don't know,
[00:04:03] is the leader of the Conservative Party in Australia, who was defeated by Paul Keating in an election that everybody said it was an unlosable election and Hewson lost it. Over a birthday cake. Over a birthday cake. So Hewson was talking about introducing a value-added tax and Keating attacked the value-added tax as, you know, the worst thing since life spread.
[00:04:26] And at one stage, he got Hewson caught in a knot over, you know, would it be applied to the birthday cake or the icing on the birthday cake, et cetera, et cetera. And that embarrassing stumbling interview with Hewson. Well, with Hewson. I mean, but it did show, wasn't it, Hewson, because he's a man who got lost deep in his thoughts. So he wasn't capable of a straight answer. And that one line lost the election, I think, because basically he said, well, will there be a tax applied to a birthday cake?
[00:04:55] And his answer was, well, it depends. Yeah. I mean, a cake is a cake. It's a yes or no question. The point I was going to make is that walking through the halls of parliament after losing the election, he was here to whisper in one of the columns. And there was Paul Keating standing behind the column, apologised for savaging him so much. He knew that he'd absolutely gone over the top. He won the election, of course, but this was Keating conceding that, you know, some dirty tricks were involved in.
[00:05:24] And I actually think it's a pity. I really regret that John Hewson didn't become prime minister at that election because I think Keating... I wouldn't have thought you would have been a big supporter of a GST, though. To me, the whole thing of a GST was a storm and a teacup. I mean, you had the... For some reason, and the Labour Party tends to do this, they'll pick onto some issue as though that's the one they're going to beat the Conservatives with. And so you had Keating...
[00:05:53] Before you had Keating attacking the GST, you had Kim Beasley attacking the GST. And, you know, Kim could do this really serious fight. It's going to be really terrible. And you think, oh, for Christ's sake, mate. And, like, I actually knew his flatmate at the time in Sydney. So this is more speaking out of turn here. But my flatmate was progressive and left wing and attacked Beasley over all the stuff that Beasley was doing in migration. And he said we can't...
[00:06:21] Beasley's answer was, we can't afford to lose any more rednecks to Howard. Now, this is a long time after Keating's time. But demonising the VAT when it was basically a minor tax reform, in my opinion, and then making it a campaign basis to win that election. If Keating had not won the unwinnable election... I've forgotten what year that was in. You can probably remind me.
[00:06:48] But if Keating hadn't lost the unwinnable election... Sorry, if Keating hadn't won the unwinnable election and then cast Hewson into the wilderness, we wouldn't have got John Howard of the next election either. Yeah. I think so. One of the consequences of Paul Keating was John Howard. So Keating was 91 to 96, so the election must have been around 92. Yeah, it was the election. The full term to 96. So yeah. Yeah, 92. And that was... There was a so-called recession we had to have as well. Yeah.
[00:07:18] So the fact that... I mean, if we had John Hewson coming in at that time, we would have had a VAT like we got with Howard eight years... Australia got with Howard eight years later. But you also would have got somebody who was a decent human being. But it wouldn't have solved the problem of that recession. So why was that... Well, the recession was caused by a private debt bubble that, as usual, Keating had no idea it was happening, ignored the whole thing.
[00:07:45] And in fact, the only time that Australia's had negative credit was actually the 92 crash. So if you take a look at what happened in the 92 recession in Australia, it was due to private credit turning negative when the housing bubble burst. And Keating was completely denying there was a housing bubble, completely denying there'd be a recession. You would know and remember, I suppose, that parliamentary...
[00:08:07] When there were two consecutive negative quarters, which is one of the ways in which recessions are defined, there was a press conference, of course. And Keating as treasurer had to come along and front that press conference. And the journalists were taking bets on how long it would take him to use the word recession. And they all... Virtually everybody lost. I mean, somebody had to win. But they all sort of, you know, 100 words in, 200 words. You made it five words in. It was, yes, well, we're in a recession. But it's a recession we had to have. Yeah. And then...
[00:08:37] But the reason he said that was because he acknowledged the fact that there was a debt bubble, that it was that people had been buying too much from banks for housing. To my knowledge, he never acknowledged that. Right. Okay. But he did push up because at this time, there wasn't an independent central bank. So, I mean, he was very proud of saying that the RBA basically carried out to him and he made the shots. So, the idea to push interest rates up to 18% was his. That wasn't 92.
[00:09:08] What year was that? I think it was earlier. I'm not quite certain aware. But the rates... I've had to check the Australian rates. I know the American rates better, frankly, these days than I do the Australian. But certainly, trying to prick a bubble by putting up interest rates is one of the reasons that politicians actually like the idea of central bank independence. Because in the days when we did face rising inflation, the typical mainstream response was to say you've got to put up interest rates.
[00:09:36] And that's the last thing a treasurer wants to do. Well, I mean, my understanding may be right this wrong. But, I mean, I was fairly new to the country at the time. So, it's sort of like, you know, I remember I was here when interest rates were at that level. Because I remember my landlord complaining about it and arguing that maybe he should put up my rent, which he might have done. I don't know. It was getting paid for by the British government in those days. So, I wasn't as concerned as I would be now.
[00:10:01] But I thought it was because for that reason that he was concerned about the debt bubble. He was trying to bring that down. He pushed interest rates up and complained that the RBA had been too slow to move. And he would have done it sooner. But that was my understanding of the whole situation.
[00:10:21] And that was then the fact that he did that then became sort of like setting, I guess, the ball in motion to seeing that independence of the central bank, you know, not too many years after that. Yeah. Yeah. So, this is one of the – a couple of times I've put out contrarian posts on election saying I'm going to vote for the conservatives because I want them to win and be stuck with the consequences of the current economic circumstances. Yeah. So, in Keating's case, I mean, there was a recession. A high need of nothing.
[00:10:51] A recession was going to happen that year because of the huge increase in credit for the housing bubble, which he caused by – this goes back – you've got to go back to 87 and 88. At that stage, Keating and Hawke were in power, of course. And we had the – you know, the beginning of the Hawke government was, I think, what, 83? I'm trying to remember. Okay. But about that period. And they deregulated housing.
[00:11:18] It was going to abolish negative gearing, which would have been a good thing. But in fact, because of the outrage from the baby boomers, that was cancelled. And then when the stock market crash occurred in 87 – and everybody's forgotten about this event now, but the 87 stock market crash in Australia was the biggest stock market crash in history. And it sounds like a 25% fall on the market in one day. Okay? That was the scale of the fall.
[00:11:48] So the stock market in Australia went from – it went up 80% between January and October of 1987. And then it fell 25% on a Monday or a Tuesday in October. Caused by what? Caused by massive speculation. When the superannuation – Labor introduced superannuation as well, which is another thing I'm critical of.
[00:12:13] I think it's just created a huge inflated financial sector. It's done bugger all for industrializing, developing the country. But with the beginning of 87, 30% of superannuation money was going into the stock market. By October, it was 80%. And of course, then there were the bubble bursts on New York. A day later, the bubble burst in Australia at a 25% fall.
[00:12:39] So a lot of the problems that Paul Keating solved was set up by Paul Keating. Okay? If you – introducing the first home – the response to the 87 crash by Hawke and Keating was to introduce the first home buyers grant. Yeah. Now, that restarted the housing bubble. So 87 was the stock market crash. 88, the aftermath. I think in 88, they introduced the first home owners grant.
[00:13:05] That meant that they gave $7,000 – I think it was – it may have been – I think it was $5,000 as a gift to a first home buyer, which, of course, they took to a bank, leave it up to a factor of 10, and put 50 grand down as a deposit and then bought a house. So it restarted the housing bubble. And that housing bubble is why we had the – Has carried on ever since. Yeah. And then that led – of course, the scale of that bubble was gigantic. I think a 30% increase in credit in one year, for example.
[00:13:34] And then it fell to minus two, and that's what caused the recession. Now, Keating was unaware of those factors because he was still living in J-curve world, you know, swallowing the economics textbook and really believing that doing what neoclassical textbooks tell you to do is the best way to manage an economy. Well, you can imagine what I was saying about it at the time, and I wasn't at all amazed to see him lose out to Howard.
[00:13:56] But again, I come back to – I wish Hewson had won because knowing – having met Hewson on a few occasions, he's a decent human being. He would never have done what Hawke – what Keating did – what Howard did, the children overboard stuff from the Tampa. Okay. Now, a whole lot of stuff. He's much more socially concerned. Much more socially progressive. Yeah. Absolutely. And much more – even though I criticized the economics, he knew the economics better than Keating did. Right.
[00:14:25] But would he have done anything different to Keating, for example? Possibly not. Possibly not. But like I – again, I've had meetings. I gave a talk at a religious conference between Christians and Muslims in Parramatta. Oh, Jesus. That's 25-plus years ago. And in the audience was John Hewson. And I've forgotten the guy who was the – became the minister for immigration. Ruddock. Ruddock. And I expect he gets savaged by both. Yeah.
[00:14:54] Now, Ruddock was actually complimentary, and so was Hewson. He said, I really enjoyed your research. Yeah, good. So, he was open-minded enough to step outside the neoclassicals. Obviously, my work is non-neoclassical. So, that's where my very tenuous relationship with Hewson began. Did Philip Ruddock smile? Sorry? Huh? Did Philip Ruddock smile? I don't think I've ever seen him smile. He always had a very intense look on his face, didn't he? He did actually smile, because he wasn't being picked up by the cameras. He needed to grimace about immigration. Yeah.
[00:15:23] But Keating, to me – I wish Keating had lost that election, because we would have had a decent person as prime minister before Howard. That person would have introduced the VAT, so the whole VAT stuff with Howard wouldn't have happened. And there's no way that Hewson would have done the children overboard nonsense with the tamper.
[00:15:46] So, you mentioned the idea of introducing the super guarantee, which you're right, Keating did introduce that. So, there was a minimum amount that companies had to pay into your super fund. The idea being, obviously, that that money would be invested, and that would look after yourself in your later life. Therefore, the government wouldn't have to pay as much pension. And there is a massive super fund now in Australia. So, it sort of achieved its aims.
[00:16:14] Of course, a lot of that investment has had to go overseas, because there's not enough places to invest that money. So, actually, what you're doing is – You can buy some great shares on the Australian stock market. Yeah. You don't do any bloody investing in Australia, because, God, that would be risking our depositors' money. So, rather than generating an actual genuine investment thrust, it generated a speculation thrust. And that's what's happened ever since. People are gambling on which direction share prices and bond prices are going into. They're not actually investing.
[00:16:42] So, I'm actually quite critical of the world that Keating created. Because it just helped the finance sector. It powered up the finance sector. The Australian finance sector is powerful in Australia as the American one is in America. And I think that's to the detriment of Australian society. And, of course, he deregulated the commercial banks as well. So, it opened up to competition from overseas, sold off the Combank.
[00:17:09] And so, I guess the problem with that, before you say it, is that they will obviously just be there to manage investments in financial products, including houses, rather than your local branch supporting local business. Because competition gets rid of all that. It is where we – the point score you get for the assets you have is what determines whether you get money in Australia or not, whether you're going to do a decent investment with it.
[00:17:39] And I think that financialization, Keating, is well and truly wrapped up in that financialization. I think that's been a negative for the country over time. And, again, it's a focus on financialization rather than industrialization. And the belief that industry is par se and services are where the future lies. Well, most of these services are filling financial obligations to each other. And that's what led to the bubble in 87 and the bubble in 2000, the bubble in 2007, all bursting.
[00:18:07] And what we've had is a progression of financial bubbles and bursts ever since. Nothing like the genuine investment that you would hope a Labor Party prime minister would be heading towards. So, it's financialization, not industrialization. So, can I understand why you'd be saying, well, you know, maybe we would have been better off with Houston. It certainly couldn't have been any worse, could it? Because it's hard to believe, actually, this was the policy direction taken by a Labor government. Exactly. And this is why I say, like neoliberalism as a philosophy began in Australia.
[00:18:37] And it began with the Labor Party after the defeat of the Whitlam government. Because the response of the party at the time, and I was involved in these discussions. So, I wasn't a member of the party, but I was advising the Metal Workers Union. And working with some of their researchers and getting involved in Labor Party meetings as a result. And they basically said, look, we got screwed by Whitlam because Whitlam was a great orator and a great civil libertarian. But he was a lousy economist. So, we need to do good economics.
[00:19:05] And what we'll do is we'll marry good economics with different social factions like the migrants and the gays and the lesbians and the blacks. And we'll get a whole lot of voter coalitions that will vote for us no matter what. We'll do the same economic policy as the conservatives will do. There won't be any differences on that front. So, we're going to get these minorities will tack on to us. And that will give us an determinate majority for the future.
[00:19:29] And my comeback, and I said this to Lindsay Tanner, who was one of the main architects of the whole thing, is, look, the policies might work for a while, but when the bubble bursts, you'll end up crashing the economy. And those groups that you were siding with will end up causing division, not unicy. Well, now look at the stuff about woke these days.
[00:19:48] So, the anti-woke-out sentiment has meant that if you associate economic policies that fail with progressive social groups, you're going to end up denigrating the progressive social groups. And that's what we can see happening in politics as well. So, you think that can all be trailed back to 1990? I think so. More than not. Well, actually, it trails back to 1975 and the defeat of the Whitlam Labor government and then all the consequences that flowed from that.
[00:20:16] So, to me, Keating is a manifestation of the consequences of failed economic policies under Whitlam, which were – Whitlam was blamed for things that were caused by international oil prices rising.
[00:20:32] And there was no deep understanding of economics from a progressive working-class perspective in the Labor Party since the defeat of – well, as bad as he was – Caldwell. But the whole idea that you should try to develop the economy in an industrial focus, that was actually stronger under Menzies than any Labor Party politician. Right. Well, let's look at industrial policy in just a second.
[00:20:59] Also, I want to look more about his approach to labor markets as well and what he tried to do unsuccessfully there as well. We're looking at Paul Keating on the Debunking Economics podcast. Back in a second. This is the Debunking Economics podcast with Steve Keane and Phil Dobby.
[00:21:24] So, Steve, the term One Nation, of course, which might send a shiver down lots of people's spines, actually, that was Paul Keating's employment plan to create One Nation. So, he was basically saying, I'm going to create – I think it was 800,000 new jobs. This was in 1996, I think it was he was saying this. Those jobs were going to be created by less discrimination.
[00:21:52] So, for example, disability discrimination, more job support. So, he did actually say, well, we want to take away – support, I guess, more welfare payments would disappear in favor of job support. I'm not sure whether work for the doll was his or whether that came under a conservative government. I think the conservatives – but the whole private – he's part of the whole privatization, the trust. And like, you know, England is actually a much better example of what happens when you privatize everything.
[00:22:22] I used to go – I call it privatization because privets are weed. Okay? Yeah. And when you let the private sector take over and they let the physical resources run down and you have all the catastrophes you can see in the UK. Australia hasn't been quite that bad. But privatizing the Commonwealth Bank was a mistake. Privatizing Qantas was a mistake. Privatizing Telstra, which came, which was later, was also very much a mistake. Actually, I mean, that Telstra one is an example.
[00:22:52] By privatizing Telstra, that allowed Telstra to hold the government to ransom under Kevin Rudd and say, yep, we're not going to give open access to an asset that used to be state-owned. And the wires into your home, we're not going to allow access to that for the upgrade to fiber, which forced Kevin Rudd to say, well, okay, we'll have to rebuild the whole bloody thing ourselves then. Because they're being held to ransom by a corporation that used to be owned by the government. Yeah, exactly. Yeah. Yeah.
[00:23:20] So all these catastrophes, you can trace back to the Whitlam government losing out badly, the blame being based on its economic policies, when in fact a lot of it was the various flotsam and jetsam in the global economy at the time because of the impact of the oil price rise in 70 and 72, 73. Now, of course, that was exactly coincided with the election of the Whitlam government.
[00:23:45] So the impact of the higher oil price fed through, that was caused a lot of the domestic inflation globally. Okay. So Whitlam was being blamed for inflation caused by global factors. And then what Whitlam did early on to fight inflation, following the advice of the Industry's Assassination Commission, otherwise these don't as the Productivity Commission.
[00:24:07] The IAC, Industry's Assistance Commission was its name, but the whole process was using neoclassical concepts to cut back projection as much as they could do. So Whitlam was persuaded by the head of the IAC to cut tariffs by 25% overnight, no warning in the belief that would cut the rate of inflation. Now, it made almost no impact upon the rate of inflation, but it meant Australian manufacturing was cauterized at the time. Amalgamated wireless, so AWA, that shut down as a result of that.
[00:24:35] So the Labor Party began the de-inter... Well, it didn't begin it, but it amplified the de-industrialization of Australia over time. So just to finish off on inflation before we get into protectionism then. So the recession we had to have was caused by very high... And the reason why interest rates ran up to that high level was because inflation was high at that point.
[00:25:00] So inflation was high at that point because there was this explosion in debt, because people were able to, because banks were competing, you know, providing this competitiveness. Was that a big cause of the inflation? It was a big cause of both the inflation and the deflation, because we look at the level of credit. I mean, because the main thing I focus upon is the global financial crisis. And in the global financial crisis, credit in Australia grew by 24% of GDP in one year. That's the scale of the bubble we had back then.
[00:25:30] But if you go back to 1988, which is when the recession we had to have began, it was 22%. And then it fell to minus 2% in 1992, recovered a bit, and then it was back negative again in 1993. So that recession we had to have was a product of the bubble that was started by cutting...
[00:25:53] By introducing the first home buyers grant and stuff like that to overcome the impact of the crashing of the 87 bubble. So in so many ways, you know, Keating's recession we had to have was caused by the bubble that he helped create after the 88... After the 87 stock market crash to get the economy through it using credit yet again. So this is one of the things which I find quite ridiculous when I watch how politicians behave.
[00:26:20] They will bring in schemes like the first home owners grant without realizing that what it actually... The reason it works to stimulate the economy is people borrow money, spend it into the economy, and then that stimulates the asset markets and that feeds into consumer markets as well. But it's all driven by speculation and bubbles and it will burst. And so the recession we had to have was caused by the boom we didn't have to have that was caused by the response to the 87 stock market crash.
[00:26:49] So less money being invested in productive growth and more in asset inflation is the consequence of his policy. But the other thing that he did, and we were just alluding to it before, was reduce tariffs. So in 1990, there was a 45% tariff on imported cars. There's 60% on some clothes. In fact, some categories of clothes had 80 or 90% tariffs on them. And generally, across all manufactured goods, the tariff rate was 15% at that time.
[00:27:19] So, I mean, some people would say, well, you know, that's crazy in a modern world. You just can't have tariffs that high around today. I mean, Trump's getting criticized for it. Australia not that long ago had tariffs at that level. Did it make sense that could Australia carry on protecting its industry in that way? The tariff wall is used to encourage foreign companies to climb over the tariff wall and establish domestic manufacturing bases here rather than... Exactly what Donald Trump's been saying. Huh?
[00:27:49] Exactly what Donald Trump's argument was. Yeah, yeah. And the thing is, that is only going to work if those foreign companies think you're going to pull more money out of the country than they pour into it. And, of course, what this meant was, Australia at one stage had five car manufacturers where the total market was less than the size of the output of one Japanese factory. So, what it meant was rather than getting a domestic manufacturer, which is what you should try to build through, through things like tariffs or other national industrial policies,
[00:28:19] rather than building up your local investment capability and having local manufacturers and local innovation coming out, you ended up importing foreigners and you imported far too many of them. So, they meant that the Australian cars that were made weren't Australian. Any profit made from them was repatriated overseas. Yeah, like General Motors, for example. Yeah. Sorry? Like General Motors, for example. Yeah, General Motors and Ford. Yeah. And Chrysler as well when it was here. Anybody who wanted to set up a factory was invited in.
[00:28:48] And then when they got here, the scale of the factory they could put up was too small to be competitive. So, it was the worst possible way to use tariffs. And certainly nothing like the way that... So, did it make sense to get rid of them then? Not, no. No, because, again, we live in a world in which international trade is distorted by, you know, domestic currency being used for international trade, the American dollar. Yeah. The... It was a recipe to de-industrialize. And that's what actually happened.
[00:29:18] Whereas the... This is the... That's why I say you've lost the working class side of the Labor Party. It's gone from being a working class to a financial class party. And again, Keating played a major role in that happening. Whereas, you know, you wanted to build up... A decent economy has decent manufacturing, period. The whole idea that you can have a services-based economy is a fallacy. And we've seen that in the UK with the city becoming absolutely dominant and the country being stagnant. A similar thing with Australia.
[00:29:48] What he generated was that it was a vibrant financial system with no manufacturing system to back it. And we ended up with what... I forgot his neighbor. One of the guys in macro business calls houses and holes. That was the basis of the economy. So, I'm trying to understand what would have been the most sensible thing to do with tariffs then. Get rid of them and... Or... Have an industrial development program. Look at the ways in which you can build industry in a country like Australia.
[00:30:16] Which, I mean, it's difficult in some ways, sure, because of, you know, large population across... You know, small population across large distances in a large country. But the populations of Sydney and Melbourne are both of the... They were major world cities until China turned up in the act. But 4 million people is, you know, pretty much the population of Denmark. It's... The small population like that can go in a high-tech direction. And I was actually involved with a couple of high-tech Australian companies at the time.
[00:30:45] Dolmont, which made the world's first genuine portable computer. Tytel, which made the world's best electronic telephones. And they were both screwed by the Australian government and Australian financial sector. So, there was... There were... There were... There were buds that could have been built on that were destroyed instead. And tariffs are basically irrelevant to that, unfortunately. So, you don't care whether tariffs were here or not. Or you feel like they should have been hung on to, but they should have been hung on to with some sort of industrial policy.
[00:31:15] With an industrial policy that makes sense. And the trouble is, Australian policy made no sense. If you want to use tariffs, then use them to build up your domestic industry, not to encourage foreign companies to jump over the fence and produce domestically. And then when you do, don't encourage so many bloody companies to come in to particular markets that none of them can be economically viable. And that's... In that case, Australia is big enough for one large... One car manufacturer. Maybe, like, you know, one mass marketer.
[00:31:45] One, maybe one mass market and a couple of specialty ones. That's what should have been done. But instead, we went bringing in five. And at some stage, they gave in six foreign companies, all producing domestically in tiny factories with far higher cost levels than applied overseas. Without the innovation domestically, because they were working on imported designs. Again, I got involved with the workers in... I've forgotten which car factory. Were they Mitsubishi?
[00:32:13] At one stage in my days with assisting trade unions. But again, the policy was completely lacking in intelligence. And this comes back to Donald Trump... Not Donald Trump. Donald Horn's put down of Australia as the lucky country. A lucky country led by mediocre managers who rely on the country's luck. Well, I mean, there were a lot of strange things going on around that time. So, clearly, they needed to be sorted out. So, my early days in Australia, a couple of experiences.
[00:32:40] For example, if you wanted an ad to be shown on Australian TV, it had to be made in Australia. So, you had companies recreating international ads in Australia. Now, Australia did win sometimes because companies like Coca-Cola would shoot their ads in Australia and show them around the world just because they had to be made in Australia to be shown on Australian TV. And the sun shines here and the people are better looking. So, it sort of worked for Coke ads. But I mean... I remember that. And ad shot in Parsley Bay. I still remember it. I think I was there, actually. You were one of the beautiful people, Steve.
[00:33:10] Yeah, I had one of my swimming spots. So, I used to go there. I've got a feeling I was there when the Coca-Cola ad was shot. And you really can't get a more bloody attractive spot than that, you know? Well, there we are. But, I mean, there were other ads that were created almost exactly the same as they were made overseas. But they were shot here just because of local regulations. But I also remember when I worked for the tourist board and there's this strange thing about taxes and import taxes, et cetera. And this apparently was common practice. We used to produce a brochure for Australia and New Zealand.
[00:33:39] And we had to pay a sales tax on it unless the majority of the brochure was used overseas, in which case there was no sales tax. So, we used to print, I don't know, we had 100,000, 50,000 for each. But we made 50,001 for New Zealand just so we didn't have to pay. And then they were binned, you know, which is just bizarre. I mean, now I think how atrocious. But, you know, in those days we were saving tens of thousands of dollars. And so, you did it because it was the cheapest way of doing it.
[00:34:09] So, it was all distorted. The whole Australian picture was distorted and needs some simplicity. And I think maybe what he was trying to do was simplify things. But, I mean, as we now know, he simplified things by opening it up to competition. But it was really financial competition rather than productive competition. Yeah, we ended up with a strengthened financial sector and a denuded industrial sector. Yeah. And that's my problem. You need – I mean, this is going to come back and bite us when global warming starts to hit
[00:34:36] because Australia has no domestic manufacturing capability to produce vehicles of any sort. It doesn't – it's – you've got to have the energy systems produced. Australia's – the country that invented the first high-performance solar cells is Australia. The university is the University of New South Wales. The academic is – I think his name is not Brian Green. I've forgotten his first name, Professor Green.
[00:35:03] The leading Chinese researcher who's turned China into a powerhouse was a PhD student there. He couldn't find local support, so he went back to China. So there's so many potential opportunities for manufacturing and high-tech to be built in the country, which were all undercut. The finance sector undid Dolmarsen. The telecommunications company undid Tytel by claiming that they're importing a Japanese phone
[00:35:31] and calling it Malaysian to evade the tariffs being – you know, it's just horrific stuff. The opposite of industrial policy combined with tariffs, and you couldn't get a worse combination. And in the labour market, he did try to introduce things like enterprise bargaining, etc., as well. I think he was trying to do the right thing, but it did weaken the power of the unions as well, which is an interesting approach for a labour man. Well, yeah.
[00:35:57] I mean, I've had some negative run-ins with Australian labour trade unions as well, I've got to say. I got hold over the coals by the manufacturing AMWU executives for supporting the workers in the Commonwealth Aircraft Corporation over building an Australian-made trainer called the Wemira. And I got done in because the top level of the union got seduced, wined and dined with a Swiss company called Pilatus. So, I've seen the negative side of the trade union movement as well.
[00:36:25] But this weird politics inside the Labour Party, but leaning on the unions, we're trying to get away from them, talking about manufacturing, but building up the finance sector and so on. I just slide a lot of this back to Keating, frankly. And I think what you've just said, certainly I think it would be a damn sight better off if Keating had not won the unwinnable election. Did he float the dollar or was that before him? I think that was Keating and Hawke. I'm not sure. Yeah.
[00:36:54] So, was that a good move? I mean, it's before that. Yeah, the floating exchange. Yeah, floating exchange. I mean, I would... Otherwise, you could just pay to the US dollar and then you've got no leeway whatsoever. We're pegged to the British pound for quite some time. Oh, okay. We're floating, floating. And then ending a heavy... Like there was a 17.5%. I actually remember I've forgotten which actually politician it was when I was teaching at the University of New South Wales. So, that's early... Late 80s, early 90s. And I think Keating actually...
[00:37:23] It may have been Keating, but there was... I gave my students a take-home exercise of, say what you think would happen if there was a 17.5% tariff cut on Monday. And guess what? There was a 17.5% tariff cut on Monday. Overnight tariff cut. That was, again, an anti-inflation measure. Seeing that... Believing that if you cut the tariffs, you'd actually have prices fall. And in fact, that's, again, free market thinking. It's a question of what happens to the firms.
[00:37:51] Do they put their markups up or down in the process? Do they change their markups? Does the tariff cut actually get passed on? So, yeah. But I just see him as, you know, a great orator. Fabulous on his feet. Brilliant for taking on the opposition. And he made the mistake of believing economic theory. Right. You haven't told me whether you think floating the dollar... Floating the dollar is just unnecessary. Let's check because I'm just not sure. But I'll just... We better check that one and feed it in later. So, hang on a second.
[00:38:20] Just check and see. Or we can just leave it, don't we? We'll talk about... Well, let's do a separate one on exchanges. We've done enough. We've got enough. Yeah, just checking. The answer is 1983. Which was? So, working under Coe Keating. Yeah. So, he did float the dollar. Yeah. Okay. Okay. So, okay. Let's pick up again then. So, you haven't told me then whether floating the dollar, which is 1983, whether that was a good thing or not. It was necessary, wasn't it? I mean, you couldn't possibly be... Yeah.
[00:38:49] I mean, the whole idea of fixed exchange rates was a farce coming out of the Bretton Woods system where the American dollar was allegedly pegged to gold. And the whole idea that you can have a peg to a speculative commodity on an exchange rate is just a fallacy. And the American dollar had to devalue because being the reserve currency meant it went into a trade deficit ultimately. And therefore, it couldn't maintain that price.
[00:39:14] So, the beginning of the breakdown of the futile Bretton Woods system began with giving up fixed rates and going to floating rates. So, that was a sensible decision in that sense. But it was a sensible decision getting away from a bad system. But it's not a great system for Australia, though, is it? Because, I mean, at times of high risk, then Australia sees the dollar weaken.
[00:39:39] Whereas, you know, because it's not as safe as investing in the Swiss franc or the US dollar. So, at times like now, for example, where oil prices are rising and our currency is weakening, it's sort of like a double whammy effect for Australia. Yeah. Yeah. I mean, we've become, the way that friends of mine in the foreign exchange market described as Sydney, Australia, it's the poker machine you throw your coins into on the way out of the casino.
[00:40:09] Apparently, something of the scale of like the fourth largest traded currency on the planet is actually the Australian dollar, given its correlations with the Japanese and American systems and so on. So, it's become a highly traded speculative currency, which is no good for anybody who wants to plan ahead. But it's one of the consequences of the floating. Yeah. And it starts early in the morning as well. So, you can get a bit of trade in early. All right. Very good. So, well, there we are.
[00:40:38] So, for all these people, and including, by the way, so as with a friend of mine's story, who is a labor man through and through, looks at Paul Keating as doing necessary reforms. And that's quite a common view, isn't it? People, even people around at the time. Necessary liberal reforms. Therefore, unnecessary reforms. We should have gone in the opposite direction. But Keating's rhetorical skills carried those arguments forward and wiped anybody else out of the Labor Party.
[00:41:07] And to finish up on one little personal note, he became the leader because he won an election with his main rival, was a guy at New South Wales University, became my lecturer in economics, Bill Juno. And I would far rather have seen Bill as treasurer than Paul Keating. Yeah. And we tend to think a lot of this reform actually happened under Howard. But it didn't really, did they? I mean, Howard actually did very little by comparison.
[00:41:37] He was just stopping the votes. This is why I say the neoliberalism began in the Labor Party because they saw that as a way of winning and hanging on to all. And of course, it failed in terms of the policies led to booms and busts. And it then denigrated the whole idea of using social coalitions to hang on to a majority of the vote. And so a lot of the anti-woke stuff I can actually trace back to the Labor Party as well.
[00:42:04] And the housing bubble that we still live with today really can be traced back to that time as well. Yep. With the deregulation of starting with the deregulation of the banks. Yep. Yeah. And also the first term, for example, the first term vendors grant. Thanks, Paul. You did well. He did. He did. All right. We'll catch you again next time, Steve. Thank you. Okay, Matt. See you then. The Debunking Economics Podcast.
[00:42:31] If you've enjoyed listening to Debunking Economics, even if you haven't, you might also enjoy The Y Curve. Each week, Roger Hearing and I talk to a guest about a topic that is very much in the news that week. It's lively. It's fun. It's informative. What more could you want? So search The Y Curve in your favourite podcast app or go to ycurve.com to listen.