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One of the main debates in economics is whether in times of economic crisis austerity or stimulus is the better option. The last Australian Labor government favoured stimulus and the current Liberal government favours austerity.

The evidence that the Liberal government favours stark austerity is staring us in the face. Firstly, they have decided to allow Australian automotive manufacturing to fail, rather than provide further financial support to allow production to continue. As a result Toyota will cease production, following hard on the footsteps of Holden and Ford:


Needless to say the Abbott government will neither support the continuation of SPC fruit canneries nor the solar energy rebate.

The message is clear: austerity is here to stay.

Internationally, the two polar extremes in terms of the reaction to the GFC were that of the United States of America and the European Union. The European Union is a loose political association of member states rather than being the United States of Europe, where there is underlying economic union. If one member state in the EU fails financially, the other member states are extremely reluctant to share the economic burden. German taxpayers are wary of bailing out Greece or Spain. This is unlike the United States of America, where the federal government has to bail out states that have financially gone into the red.

In the case of the United States of Australia (a political situation created by federation), under the Rudd government a programme of rapidly instituted economic stimulus saved the country from going into recession unlike most of the OECD. The Rudd government followed the Obama government in this regard, rather than the European Union. By way of contrast, as a result of her staunch refusal to loosen the purse strings to bail out failing states within the European Union, Angela Merkel has been dubbed as “Frau Nein”. Member states of the EU that have gone into the red have been forced to endure draconian austerity measures.

Hardline opponents of stimulus regard recession as a good thing, and a necessary counterbalance within a “self-regulating” economic structure. Intervention to prevent recession, is, in this view, a terrible crime against the natural order of the capitalist system. Austerity, however tough it may be, is thus a desirable thing.

It looks like Australia has now voted in the Oceanic equivalent of Merkel: a staunch “Herr Nein” in the form of Tony Abbott. To SPC, Toyota, and Holden he has stated a clear and unequivocal NEIN! In other words, although they would never sell it in such terms to the Australian public, the Abbott government really wants the Australian economy to go into the recession that the Rudd government averted. Aggressive and rapid withdrawal of everything that could count as infrastructure stimulus is being imposed on the Australian economy precisely as the mining boom shows signs of waning. The hard landing of a recession is the only possible outcome.

The suggestion that a government would actually want its nation to go into recession will naturally be greeted with utter disbelief. However, in every recession there are both winners and losers. In this case, recession will drop the value of the Australian dollar, and the main industry that stands to gain from this is the mining export sector. Just as mining magnates bankroll the Tea Party movement in Washington, the mining sector is bankrolling the move to similar neo-liberalist economics in Australia. The goal is clearly to sustain the mining boom a little longer and to line the pockets of those who are financing the Liberal Party.

Instead of the Keynesian infrastructure stimulus that is slowly drawing the US economy out of its recession, Australia is going to go through the sort of austerity that countries like Greece, Ireland and Spain are suffering though. There is little evidence that such austerity is doing these countries much good. Yet the almost Tea Party styled far-right economics of the Abbot government, of the sort that even mainstream moderate Republicans reject, are being systematically forced upon Australians, without there having been even the slightest hint of a necessary public debate as to whether this was what voters truly wanted.

Bitter medicine indeed.

Postscript: an upcoming book that argues against austerity