The following article is a relatively superficial overview of economic and political cycles in Australia since the 1840s. The reader is encouraged to perform further independent research and reflect upon patterns and theories related to economic and political cycles in Australia.
The following chart represents at a high level the major economic cycles in Australia's history since the 1840s, with an overlay of some of the major political events that appear to be linked to the economic cycles.
Let us now examine some of the high-level cyclical themes represented in the chart above.
Economic booms and busts
The Australian economic landscape has been punctuated with major booms and busts, with each cycle lasting roughly 38-39 years. The following is a list of the a) booms, b) primary reason for the boom, and c) the resultant bust:
- 1850s Gold Rush; massive inflation-related boom from gold discoveries; post-gold rush bust with decline in pastoral growth.
- 1880s Property Boom; massive speculative bubble in property with loose lending practices; the Long Depression.
- The "Roaring '20s"; massive speculation primarily in paper assets; the Great Depression.
- The "Long Boom"; post-war manufacturing advantage; 1970s stagflation, rising debt levels and rolling recessions.
- The current "Credit/Derivatives Boom"; ponzi-financed property bubble, worldwide asset market bubbles; the current post-Panic of 2008 (aka "GFC") downturn.
In each of the booms there was significant credit growth, and with perhaps the exception of the Long Boom, pyramid-like growth in the money/credit supply. All bubbles eventually burst; often the burst is quite painful.
Political benefactors of the booms
The author will ignore pre-Federation political benefactors of the booms; however, the topic is worthy of further research.
The following politicians were major benefactors of being in the right place at the right time, perhaps more-so than for any competencies they possessed or policies they stood for.
Billy Hughes and Stanley Bruce (Nationalist Country coalition)
Billy Hughes and Stanley Bruce were leaders of the Nationalist/Country coalition and Prime Ministers from the Commonwealth election of 1917 up until the election of 1929 (12½ years). Although Hughes was appointed during the Great War, aka World War I and taking into account some of the challenges post-WWI, the Ministries of Hughes and Bruce were benefactors of the Roaring '20s. Whilst some policies implemented by their Ministries may have attributed to wealth creation, they happened to "get lucky" with their appointments during a secular economic boom.
Interestingly, Bruce became the first sitting Prime Minister not to be re-elected to parliament; one contributing factor was that he campaigned to alter industrial relations legislation.
Robert Menzies (Liberal/Country coalition)
Robert Menzies' second term as Prime Minister followed the end of World War II and the immediate aftermath of the war. Menzies and other members of the Liberal/Country coalition held ministries from 1949 up until the election of 1972 (23 years) Much of the industrialised world had been ravaged by war; Europe, North Africa, Japan and large parts of Asia had their manufacturing capacity decimated; China and the Soviet Union had closed markets. The likes of Australia, Canada and the United States who did not suffer major losses to their manufacturing capacities were able to capitalise on this comparative advantage. Whilst some policies implemented by their Ministries may have attributed to wealth creation, they happened to "get lucky" with their appointments during a secular economic boom.
John Howard (Liberal/National coalition)
John Howard was appointed Prime Minister in 1996. This was preceded by 13 years of Labor party member-led ministries, a sharp cyclical recession in the early 1990s, and a ministerial leadership of Paul Keating that discouraged irresponsible credit growth. The 1990s was a period when global financial markets underwent a transformation that included an (arguably) unprecedented explosion in paper assets fueled by derivative markets and securitisation; the dot-com boom; the housing booms in Australia and abroad; bubbles in various other asset markets. Howard's ministries happened to "get lucky" with their appointments during a secular economic boom, and whilst some policies implemented may have attributed to wealth creation, policies such as the First Home Owner Grants, changes to capital gains tax and "cheer-leading higher house prices" actually fueled the housing bubble into a housing mania.
Interestingly, Howard became the second sitting Prime Minister to not be re-elected to parliament. Like Bruce, his final election campaign included policies to alter industrial relations legislation.
In each of the three examples above there was a "it's time" factor with the electors; people were looking for change partially for the sake of change.
Tipping points and political fallout
The Eureka Rebellion, and political concessions
The gold rush produced enormous wealth for some living in Australia, though many were unhappy with a lack of rights. This friction eventually exploded into what is commonly known as the Eureka Rebellion, where aggrieved miners took up arms against police and military personnel of the Crown. While the rebellion was a military failure it did result in political change and the rebellion's leader, Peter Lalor, being elected to the Victorian Legislative Council in 1855. Some characterise this event as the "birth of Australia."
The 1880s property bust, and formation of the Commonwealth
The 1880s was a period of massive speculative behaviour in property markets. However, by the end of the decade the bubble had burst ushering in the Long Depression which lasted almost two decades. Whilst the financial malaise lasted well into the 1890s, including a week-long bank holiday in Victoria in May of 1893, the Australian people were agitating for political change. This change was lead by Constitution Convention debates held throughout the 1890s, which culminated in the federation of States to form the Commonwealth of Australia in 1901. Federation also brought an end to sovereign parliaments which were operating during colonial rule.
The stock market crash, and the defeat of Scullin
James Scullin was appointed Prime Minister only weeks before what is often considered to be the commencement of the Great Depression, the Wall Street Crash of 1929 (aka Black Tuesday). Whilst some of the policies implemented by his ministry may contributed to the depression being worse than it would have otherwise have been, his timing in terms of secular economic cycles could not have been worse.
The swing against Scullin's ministry is the largest in Australia's history (21.7%).
Interestingly, in 1930 Scullin took an historic stand by providing an Australian nomination for Governor-General, rather than having the matter arranged through the advice of the British government to the King. Furthermore, the Australian government put only one name before the King, that of the Chief Justice of the High Court, Isaac Isaacs. Despite the overt disapproval of King George V, Isaacs became the first Australian-born Governor-General. For many Australians, however, this was not triumph, but close to treason.
The sacking of Whitlam, and the defeat of Whitlam
Gough Whitlam was appointed Prime Minister in 1972 on the back of a strong sentiment of, "it's time (for change)". Whitlam's ministry took over at a time when Australia was declining from the Long Boom and stuck in military engagement in Vietnam. It was also shortly after Richard Nixon took the US Dollar off the gold standard, and shortly before the oil crisis of 1973. Whilst there was no single catalyst for Whitlam's demise, which can be largely attributed to the performance and policies of he and his fellow ministers, Australia faced a "constitutional crisis" in 1975. Sir John Kerr dismissed Whitlam as Prime Minister leading to fresh elections and the defeat of the Whitlam ministry.
The swing against Whitlam's ministry is the fourth largest in Australia's history (7.4%); it is the second largest behind Scullin to unseat a ministry outside of war years.
In some respects the fallout of the 1970s did not conclude until the early 1980s to which Malcolm Fraser's ministry suffered from the secular economic cycle and Bob Hawke's ministry the benefactor.
Interestingly, in 1973 Whitlam introduced the Royal Style and Titles Act which completely altered the Queen's status within the Commonwealth (and appears to be ultra vires of the Constitution). Further information about Whitlam's disrespect for the Constitution and the monarchy is documented in Arthur Chresby's book, "Whitlam's Republican Dream & Evidence that Demands a Verdict" (ISBN 0-9595299-1-8).
The Panic of 2008 (aka the "GFC"), and the demise of Rudd (and the demise of Gillard?)
The credit growth during the most recent boom appears to have ceased in December 2007, the same month that the Rudd ministry was appointed. Whilst some of the policies implemented during the Rudd and Gillard ministries may have contributed to the economic position of Australia being worse off, his timing and that of other Labor Party members elected to parliament could not have been much worse. Like the Whitlam ministry, the Rudd and Gillard ministries have been plagued with incompetencies, economic mismanagement and accusations of misproprietory.
The writing was on the wall for the Labor Party so in June, 2011 the party deposed of Kevin Rudd as leader of the party and appointed Julia Gillard as leader. This was quickly followed an election in which Gillard was only able to form a ministry based on an alliance between a member of the Greens Party and several independents, narrowly avoiding the first single-term ministry since the Scullin ministry of 1929-1931.
Interestingly, there is currently a push to alter the constitution to (further) recognise indigenous Australians in the Constitution. This is likely to be a stealth attack on the system of government under the Sovereign as defined in the Constitution. Julia Gillard has stated publicly that she believes that Australia should adopt a republic on the passing of Her Majesty, Queen Elizabeth the Second. To that I'd suggest she go jump off a pier!
In each case, the Australian people have sought political change following economic downturns. In some cases they have been quite dramatic political changes.
Common themes
Some themes that seem to appear through these cycles (though are not substantiated with references):
- The peaks of the booms are never identified or admitted to until after the fact.
- Booms are punctuated by credit growth and generally, unstable credit growth.
- Institutional and bank failures are common during collapses.
- Australians tend towards an "it's time" political factor after a lengthy boom period.
- The "nationalist" parties tend to provide governance during the boom years.
- The "socialist" parties tend to be preferred when the boom years have peaked and Australians are more receptive to socialist policies.
- Australians happy to run on "auto-pilot" during boom years.
- Prime Ministers who are Labor Party members tend to attack the monarchy and the Constitution (due to a philosophical tendency towards republicanism).
Looking forward from July 2011
The following are major factors currently shaping attitudes of the people of the Commonwealth:
- The Commonwealth is facing a secular economic downturn, at least as bad as the 1970s/early 1980s, or possibly as bad as the Long Depression or Great Depression.
- The number one issue in the minds of electors currently is the increasing cost of living.
- The Gillard ministry has stated its intention to introduce a carbon tax.
- A carbon tax will increase the cost of living on Australian families, and increase costs to businesses.
- The Prime Minister, in introducing such a tax, has grossly misled the people (lied to the people).
- The present ministry has "spooked" the mining and minerals industries with proposed super-profit taxation.
Globally, it is likely that international economic malaise will impact the Australian economy before the next election. There is also a possibility of a technical recession announced in September of this year (following the floods of 2010 in Queensland). It is likely that if economic confidence is low entering into and continuing in 2012 then the carbon tax will be the death knell for the Gillard ministry.
Unless the country somehow experiences renewed confidence on the back of credit growth and a continued commodities boom, then it is looking like the Gillard ministry will suffer the same fate as previous ministries caught in office at the wrong time - and they seem hellbent on digging an even deeper grave for themselves.