Hawke government failures send a message
letter published in The Australian, 3 January 2012
[Square brackets deleted by Ed. See footnotes also.]
John Stone’s article (“Fraser’s budget blowout was Hawke’s saviour”, Commentary 2/1,) and letter (2/1) reveal how wrong previously accepted history can be.
The mistaken idea that floating the dollar somehow solved external problems was in fact revealed in the steady downward depreciation of the $A after the float, reaching 15 per cent lower (relative to the US dollar) by May 1986, when Treasurer Paul Keating stated that, unless Australia adopted policies to improve its international competitiveness, it was in danger of becoming a banana republic.
Indeed, accepted history overlooks the failure of the Bob Hawke government to adopt the accompanying major changes in budgetary, monetary and labour market policies needed in an exposed economy.
The price was paid in the recession of the early 1990s. There is a parallel here with [current events] in Europe, where a floating exchange rate has not been accompanied by other deregulated policies. Those developments, and the Hawke government failures, send a message to the Gillard government.
Des Moore
Former deputy secretary to Treasury [when the float decision was taken], South Yarra, Vic
Footnotes: The Editor deleted my reference to Stone’s article of 31/12 on “The dollar myth that floated” and substituted a reference to his article on “Fraser’s budget blowout was Hawke’s saviour”, Commentary, 2/1, which had nothing to do with the float. He also added “Bob” before “Hawke Government”.
The Stone article of 31/12 appeared in the Week End Australian and was also, he has informed me, subjected to significant editing (Stone also had three letters published correcting factual errors by commentators on what happened). A more extensive version of his article is published in Quadrant for January and is recommended for those wishing to obtain an accurate explanation of the history of the move to float the dollar and remove most exchange controls on capital flows, and the reasoning behind Stone’s view that the move to a float should start by allowing the forward rate to float and be accompanied by other policy changes.
The latter is relevant to the critique of my letter published in a subsequent letter published in The Australian. The author of that letter takes the view that it is wrong to draw a parallel between the euro float and the Hawke era economy because the euro countries did not have the discipline of an individual floating exchange rate (my emphasis).However, the point I made in my letter is that the float of the $A was not accompanied by any major changes in policy in other areas (ie the discipline was absent) and that this contributed to the steady depreciation that ended with Keating’s 1986 banana republic statement about the need for policy changes. It is not appropriate to pursue this issue is here except to add that the policy changes that did occur under Hawke/Keating were clearly inadequate, particularly in regard to monetary policy.
As to the euro countries, if they had had individual floating exchange rates there would of course be no economic euro. Whether an individual rate would have produced more discipline than has occurred is moot.
Des Moore