(Image: David Murray on ABC’s 7:30, 3/10/2012)
By Conal Thwatie
Last week former CEO of the Commonwealth Bank David Murray claimed a Greece-style debt crisis could happen in Australia if we don’t manage our finances properly.
It got me thinking, who’s “we” in this scenario?
Murray was speaking to Leigh Sales on 7:30. His analysis was that of a banker.
He argued that Australia’s current account deficit (CAD) meant that some “belt-tightening” was in order.
The CAD is the difference in value between imports and exports. Every year the nation runs a deficit (most years) the amount of money we already owe to other nations increases.
In this scenario the “we” is the nation. It’s an aggregate of all our economic activity. You may not have personally borrowed thousands of dollars from Chinese investors to buy your house, but you borrowed it from say, the Commonwealth Bank, who did.
So you, me and the Commonwealth Bank should stop all this borrowing and spending?
Not according to Murray. All his proposals were for cutting government debt not the majority of “our”, external debt.
Enter one of the most intriguing devices used to promote right-wing reform over the past two decades, and which journalists for the most part responsible for perpetuating through ignorance.
It is the deliberate confusion between “we” the nation and “we” the government.
By pointing out how greedy, debt-ridden and financially obese “we” are as a nation, it is proposed that “we”, now represented by public finances, should be more frugal, cut back on social spending and sell off all the government’s assets.
None of this addresses the woes of the private debt problem that plagues the western world, and which triggered the GFC.
Yet journalists rarely ask economists to explain who “we” is; is it the government or the nation? And what is the connection between the two? Given economics is confusing enough already, you might think these would be good clarifying questions for the untrained audience.
Murray’s comments drew some commentary from trained economists like Ian McAuley, who pointed out that growth in private debt has been integral to the Australian growth model for decades.
Governments used to prop-up demand by borrowing money and spending it. Then Western governments started stimulating demand by deregulating the finance sector – allowing the bankers to lend the money instead.
If you happen to be the CEO of a bank, that’s great news because it means banks make a lot of money issuing debt, instead of the government. The government being “us”, remember?
Perhaps it’s unfair to expect journalists to grill economists in this fashion. But when you hear an economist say “we” in an interview, start by asking them who they mean.