It would be wrong to call John Fraser the new head of the Commonwealth Treasury Department an "economist's economist". Firstly, because he's not and secondly, because it would be an insult.
Unlike most economists, and unlike nearly every economist in Treasury, Fraser has some real-life experience. He escaped the village that is Canberra. He worked for two decades in the department and was one of its deputy secretaries but he's also spent 20 years at the global financial giant UBS, including more than 10 years in London as chairman and CEO of its asset management business, one of the world's largest investment managers. It would be safe to assume Fraser didn't return to the public service because he needed the money.
There are other ways in which the new Treasury boss is different from the normal, run-of-the-mill economist. Last week he declared to the Senate Economics legislation committee: "I do not resile from the point that I do not think spending our way out of lower economic activity is the way to go."
Once, such a view was uncontroversial. Today, practically every international economics organisation preaches the opposite. And when Fraser said Ronald Reagan's personal and company tax cuts had "helped to reinforce the entrepreneurial spirit which is alive amongst the smaller and medium-sized businesses in the US", there were almost audible gasps from the Labor senators.
Treasury was once the most important and influential department in Canberra. It's still the most important department. One of Fraser's key tasks will be to restore Treasury's position as the pre-eminent source of honest and rigorous advice to government. Some time in the past decade, Treasury ceased to be the custodian of the finances of the current and future generations and instead became a cheerleader for bigger government.
The nadir for Treasury's reputation came in 2010, when Sinclair Davidson discovered the department had cherry-picked data in an attempt to prove that countries with large stimulus packages (such as Treasury recommended for Australia) performed better during the global financial crisis than countries with smaller packages. In fact, there was no statistically significant difference. The previous year, then prime minister Kevin Rudd claimed Treasury modelling proved a carbon emissions trading scheme would not reduce employment in Australia. Alex Robson later revealed the basis for Treasury's claim rested on the patently absurd assumption that an emissions trading scheme would "apply globally".
There are many reasons why the Abbott government has struggled to communicate the scale of the economic challenges facing Australia. One is that Treasury has failed to explain the consequences to politicians and the public if the country's fiscal trajectory does not change. The overwhelming sentiment among modern-day Treasury economists is that Australia is not Greece and never will be, so there isn't too much to worry about. The 2015 intergenerational report released on Thursday does explain the consequences. The report identifies that under what it calls the "previous policy" scenario (ie the previous Labor government's policies), government debt would within 40 years be more than 120 per cent of gross domestic product. Currently it's 15 per cent of GDP.
Fraser understands the consequences of Australia potentially having a debt bigger than the size of its economy. He has a first-class honours degree in economics — and he's honest. Arguably the most important attribute any adviser to government is honesty. During the Senate committee hearing, when Coalition senator Matt Canavan asked about the impact on the exchange rate of fiscal consolidation, Fraser replied he didn't know and said there was "a Himalayan mountain of books written about that issue".
The point he was making was that on many of the big issues in economics there's no right or wrong answer — there are just opinions. Economics is the study of human behaviour. What we call "the economy" is in fact just the bundling together of the myriad of decisions that every individual makes every day. Economics is not a science and never can be.
There are lots of smart economists but only the most intelligent of them have the intellectual honesty to admit that not even economists have the answer to every question.
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