Astounding economic naivety of Jim Cairns

The Australian Financial Review, 21 October 2003

Much has been said about Jim Cairns’s political roles during and before the Whitlam Government of 1972-75. The faithful aside, these now seem so lacking perception as to be irrelevant. But with a senior lectureship in economic history, and an economics doctorate on social services history (awarded third try by a reputedly sympathetic academic), Cairns’s economic agenda has received little attention.

Absent commentary may partly reflect his blissfully short reign as Treasurer from late 1974 to mid 1975. When it became public that he (as well as Rex Connor) had recklessly commissioned an unqualified private agent to seek Commonwealth overseas loans without cabinet authority, Whitlam moved him out of Treasury. Australians were spared a budget speech disseminating Cairns’s economic views.

Nonetheless, the infamous September 1974 budget, formally presented by then pushed-aside Treasurer Frank Crean, provides some guide. It was dubbed ‘the Cairns budget’ because his views were so incorporated after successful behind the scenes manoeuverings with Tom Uren. That led Whitlam (who had almost lost leadership to Cairns in 1968) to force him to accept full Treasury responsibility. Cairns initially dodged acceptance, but eventually fronted.

Fronted is perhaps an exaggeration. Private secretary Junie Morosi allowed senior Treasury officers only infrequent access to their minister and Cairns’s public statements displayed astounding naivety. A classic example was his response to Bert Kelly’s parliamentary question about the money supply jump to a 20-25 per cent pa increase, accompanied by a doubling in annual price and wage inflation to 15 percent: simple, said Cairns - anything that might conceivably reduce unemployment was fine. [Fortunately, his short reign meant Australia adopted the South American printing press solution (sic) to unemployment only briefly].

As a prime motivator behind Labor’s spending spree in 1974-75 (up 15 per cent in real terms), Cairns must also share a major responsibility for that disaster. He used advice from Keynesian academic and other private ‘experts’ to argue for increased government spending to counter slowing private spending and rising unemployment (still, however, then below 2 percent). [To Cairns and leftist colleagues that also provided the necessary rationale for pursuing their underlying objective of a bigger public sector].

All this completely ignored Treasury warnings that a failure to give priority to combating inflation would likely mean a fall in business and consumer confidence, declining business investment, slower growth, and rising unemployment. In the event, 1974-75 saw private investment fall 13 per cent, unemployment almost double, inflation at over 16 per cent and growth fall from 5 to 2 percent. There were adverse longer-term effects too.

Treasury officers went through purgatory in [continually] advising Cairns and other Whitlam Ministers that different economic policies were in the public interest (and theirs). They found Cairns a man out of his time, pursuing a personal agenda he perceived as humanitarian but that had the opposite effects.

Des Moore was OIC Treasury external economic relations in 1975 and twice accompanied Cairns on overseas missions. He is now director, Institute for Private Enterprise.