Unemployment levels continue to rise, but Government will be unable to address the problem without a fundamental paradigm shift in economic policy say senior economists.
Martin Watts, Associate Professor of Economics at Newcastle University, says unemployment levels will have to be addressed through government spending, but the present political fixation on budget surpluses is hindering the process.
“There is so much hysteria about the Government going into deficit. Politicians need to explain that unlike households, a Federal Government is not constrained in its spending,” he told The Epoch Times.
A recent survey from the ANZ bank has shown the number of newspaper job ads falling at a faster rate than the last recession, slumping by 30 per cent during 2008. Significantly the job ad rate fell 9.7 per cent in December alone – the lowest level since 1999, Bloomberg reported.
“The rate of decline in job advertising intensified in the month of December, providing further evidence that the demand for new labour across the Australian economy is now at recession levels,” ANZ head of Australian economics Warren Hogan said in a statement.
Dr Watts, who is also an associate at the Centre of Full Employment and Equity (CofFEE), says the economic slowdown is going to be severe with the entire international community affected, but the Government cannot achieve full employment without running a budget deficit.
“It is a difficult policy to sell, but it is not saying that governments should spend without restraint. There has to be a coherent policy framework in place. CofFEE advocates the introduction of a Job Guarantee.”
Dr Watts said that as part of a recently completed research project, CofFEE have surveyed local councils on the extent of unmet needs that could be addressed by a Job Guarantee. Jobs in areas including aged care, transport and environmental remediation had been identified.
Creating employment in these areas, which would be accompanied by training, could accommodate not only the unemployed, but also the lesser known “underemployed” – those who would like to work more hours but cannot find a suitable job.
Prime Minister Kevin Rudd tested the water with deficit language in Parliament last year saying that if Australian economic growth slowed further because of the global financial crisis, then “it would be responsible to draw further from the surplus, and if necessary, to use a temporary deficit to begin investing in our future infrastructure needs … including hospitals, schools, TAFEs, universities, ports, roads, urban rail and high speed broadband.”
His statement, however, was howled down by the Opposition, Shadow Treasurer Julie Bishop quick to reply: “With the Prime Minister now admitting to driving the Budget into deficit, isn’t he admitting to irresponsible economic management?”
Senior economists are increasingly alarmed at the political stance saying it is logical to run a budget deficit in bad times.
“The whole role of Government is to smooth out cycles and now is the very time they should be borrowing and investing in infrastructure; and in particular investing in education and the infrastructure of education,” Patricia Apps, Professor of Public Economics at Sydney University, said on the ABC. “… the idea of not going into debt; it’s quite extraordinary that it’s taken such a hold, when in fact it does not come from economics. It makes no economic sense whatsoever.”
Federal Treasurer Glenn Stevens said as much when he addressed a business diner in Melbourne late last year.
“If we see governments at state level or Federal level pull back from worthwhile things because of the budget balance deteriorating, which it’s going to do in this environment, that’s not stabilising, that’s potentially destabilising,” he said.
Bill Mitchell, Professor of Economics at the University of Newcastle and Director of CofFEE says the present paradigm in economic policy must change.
“Government has to re-learn that deficits are normal and provide the liquidity to finance private savings and ensure that spending in the economy generates full employment,” he said.