Introduction

Since the mid-1970s, Australian economic policy has been driven by a set of ideas based on the claim that a market economy, with minimal government regulation, will outperform any alternative. The central goal of policy has been to reduce the scope and extent of government activity, with the aim of promoting productivity growth. The dominance of these ideas may be seen in the very names of government departments like the Department of Finance and Deregulation and institutions such as the Productivity Commission.

The same set of ideas, with variations, has been dominant throughout the world, beginning in the economic turmoil of the 1970s and reaching its peak of confidence in the 1990s. The ideology that unifies them has been given various names: ‘Thatcherism’ in the United Kingdom, ‘Reaganism’ in the United States, ‘economic rationalism’ in Australia, the ‘Washington Consensus’ in the developing world, and ‘neoliberalism’ in academic discussions. Most of these terms are pejorative, reflecting the fact that it is mostly critics of an ideological framework who feel the need to define it and analyse it. Politically dominant elites do not see themselves as acting ideologically and react with hostility when ideological labels are pinned on them. From the inside, ideology usually looks like common sense. The most neutral term that could be found for the set of ideas described by these pejoratives is market liberalism, and this is the term that will be used in this chapter.

Market liberalism created the preconditions for the Global Financial Crisis (GFC) and, repackaged as ‘austerity’, ensured that the crisis became a sustained depression engulfing most of the developed world. The failure of austerity is now widely recognised within the economics profession, even by bodies like the International Monetary Fund, which has traditionally had the role of enforcing painful adjustments on indebted governments.

Australia avoided recession during the GFC, in large measure because of policies of fiscal stimulus adopted both there and in China, Australia's most important export market. However, the Labor Government failed to defend the stimulus policy against conservative attacks, instead focusing its efforts on defusing the issue through a rapid return to budget surplus.