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American Delusions Down Under

16/07/2014

For better or worse, economic-policy debates in the United States are often echoed elsewhere, regardless of whether they are relevant. Australian Prime Minister Tony Abbott’s recently elected government provides a case in point.
As in many other countries, conservative governments are arguing for cutbacks in government spending, on the grounds that fiscal deficits imperil their future. In the case of Australia, however, such assertions ring particularly hollow – though that has not stopped Abbott’s government from trafficking in them.
Even if one accepts the claim of the Harvard economists Carmen Reinhart and Kenneth Rogoff that very high public debt levels mean lower growth – a view that they never really established and that has subsequently been discredited – Australia is nowhere near that threshold. Its debt/GDP ratio is only a fraction of that of the US, and one of the lowest among the OECD countries.
What matters more for long-term growth are investments in the future – including crucial public investments in education, technology, and infrastructure. Such investments ensure that all citizens, no matter how poor their parents, can live up to their potential.
There is something deeply ironic about Abbott’s reverence for the American model in defending many of his government’s proposed “reforms.” After all, America’s economic model has not been working for most Americans. Median income in the US is lower today than it was a quarter-century ago – not because productivity has been stagnating, but because wages have.

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