January 6, 2014
As we know the Global Financial Crisis of 2008 and 2009 that had its roots in the subprime crisis in the US and the use of collateralised debt obligations or CDOs, undermined “neo-classical” economic policies, which had replaced Keynesian policies as the global economic orthodox. Neo-classical” or neo-liberal economic policies had been hegemonic for around thirty years.
Neo-classical policies are grounded in the view that economic systems tended naturally towards equilibrium, where markets cleared and all resources were fully utilised. What was required were free markets, private enterprise and minimal government intervention. The various strands of neo-classical economic policy essentially reflected a faith in laissez-faire economic management in the pursuit of long-run growth.
The problem, as we saw with Wall Street, is that that enlightened self-interest does not always operate in the public interest and that when the private sector has problems ---those particular financial instruments CDOs became impossible to value – and therefore impossible to sell when confidence in them eroded---and can’t fix itself up, the only alternative is the public sector.
Thus Wall Street had to be bailed out to protect the global financial system, and the state has to pump the economy to prevent an ongoing and deepening recession in the global economy.
Australia survived the Global Financial Crisis only to be hit by the ongoing and deepening recession in the global economy. Demand for Chinese goods contracted in a depressed Europe and US, China's economic growth slowed, its demand for Australia's raw materials declined, the mining boom came to an end, and Australia started experiencing the inevitable downturn. So East Asia's rapid economic development and industrialisation that had transformed the region to Australia's north that had relied on Australia s resource riches came to an end.
Looking back we can see that the windfall gains of Australia’s resource wealth was not locked away in a sovereign wealth fund for future generations-- to help overcome the bust, ease structural adjustment, and climate-change mitigation. Instead we have the emergence of stage-managed public outrage and abuse organized by powerful political forces----a hostile political opposition and powerful vested interests-- to contest expert opinion as part of the Australian political process.