Tuesday, July 07, 2015

Greece, Jack Lang and the Great Depression: are there lessons?

In discussion in comments on the current Greek crisis, I suggested that the Australian battle over the Lang Plan during the Great Depression provided a local model. For those who are interested, this piece provides an overview of the period:  Drummond's life 6 - troubled times: public life 1929-1932. It's written from a particular perspective, a political biography. However, I think that you will see the similarities.  

At the time of these disputes, the Australian states were much more powerful relative to the Commonwealth than now. The new Federation was only 28 years old. There was no central monetary or fiscal policy in the way we use those terms now. The end result was a great strengthening of Federal power relative to the states.

Obviously we have to be careful about the use of historical analogies. However, there are interesting similarities. Like Australia at the time, the EU is really an evolving Federation. The economic challenges are not dissimilar including the differential impact of Federation on diverse local economies.Without over-stating the analogy, and recognising the differences, my feeling is that the most likely outcome with or perhaps less likely without Greece will be the strengthening of central control at least within the Eurozone area. It's part of an evolutionary process.

Postscript

My thanks to Winton Bates for discovering this fascinating paper on Keynes' Australian connections.  

13 comments:

Winton Bates said...

Jim
I read somewhere (can't remember where at the moment) that Keynes supported the Premier's (austerity) plan for Australia during the depression. I wonder what his view would have been been on EU imposing austerity on Greece.

Anonymous said...

Jim, that's I think the third time now that I've read your linked piece. Fascinating stuff, and very well written. Thank you.

kvd

Jim Belshaw said...

Hi Winton. I am not aware of the Keynes on the Premier's Plans. On Greece, I suspect that he would have disagreed on Greece. The circumstances were different. In Australia, all the states were affected, with the totality facing a balance of payments constraint. That's not true for Greece.

Thanks, kvd. I thought that you might have read it, but it does set a context.

Anonymous said...

But I can't agree with your attempted comparison - however well written is your history of the NSW crisis.

Greece has no external Governor appointed to exercise such an extraordinary power - a reset button if you will to allow a contemporary reference. Greece stands alone, not as some sort of subsidiary to a commonwealth of states. NSW could not in practical terms 'go it alone' because doing so would have been treason, in effect. But Greece may do that; as a sovereign state, with no higher power to answer to.

NSW was/is in a political union; Greece not so much. Where is the comparison?

kvd

Jim Belshaw said...

The comparison is better than you might think. Greece is a member of the EU, which means that it has given up certain national powers. Greece is a member of the Euro. giving up further powers and accepting certain obligations. The consequent dynamics are not dissimilar to those in Depression Australia. Lang forced the commonwealth to pay interest on NSW loans but ultimately ran out of money and was forced to capitulate. Greece was bailed out, objected to the terms and ran out of money.

Unlike WA that actually voted in a referendum to secede from Australia but was not allowed to, Greece has indicated that it wants to stay in the Euro and the EU. The two are not identical. Greece could leave the Euro, but stay in the EU. There is no formal exit strategy from the Euro. Unlike the WA case, either Greece or the Euro zone could opt for or force withdrawal despite the absence of formal mechanisms. That's different. Then comes a question of cost and response.

I accept the analogy is far from perfect. But applying it leads to the suggestion that a probable outcome of the crisis may be a strengthening of central control at least in the Euro zone. That outcome would seem counter-intuitive to many and certainly runs against the main threads of current discussion.

Ian Harris said...

Keynes released his General Theory in 1934. At the same time Otto Niemeyer from the UK govt was out here lecturing our govts on adopting austerity so that they could pay their loans back--/ including the one for billeting and supplying our troops on the Western front during WW1. Keynes would have been for pump priming like Ben Bernanke was!

Ian Harris said...

That was the reason Lang was fired. He preferred to keep money flowing through the NSW economy rather than see it dry up and people being on the streets on the public purse. So he refused to pay the interest on the UK loans.

2 tanners said...

"Obviously we have to be careful about the use of historical analogies. However, there are interesting similarities."

Indeed. But I am trying to remember the last time austerity saved us (or anyone) from just about anything. Austerity, for the purposes of my argument, is defined as a deliberate reduction of government expenditure in a time of lowered economic activity. Other definitions will be happily discussed. But it is different from, for instance, a time of high Government expenditure, high inflation and high economic activity.

Winton Bates said...

Hello all, I have remembered where I saw the reference to Keynes supporting the Premiers' Plan. It was in this RBA paper by Donald Markwell:
http://www.rba.gov.au/publications/rdp/2000/pdf/rdp2000-04.pdf
One interesting point I was not aware of is that Keynes supported public investment to counter the recession prior to publication of the General Theory in 1936.

Another point worth considering is that even in the 1960s when Keynesianism was at the height of its popularity among economists in Australia there was recognition that policies to boost aggregate demand could be self-defeating for a small economy with balance of payments problems. (My recollection is that Trevor Swan's analysis was widely supported in Australia.)

Comparing the current situation in Greece with Australia as a whole in the 1930s may be more useful than a comparison with the Lang government of NSW. The relevant point of comparison is that Australia left the gold standard.

Jim Belshaw said...

Hi Ian, 2t and Winton.

Winton, that was a very interesting paper, so I have brought it up in the main post.I agree on Trevor. Even in the 1960s, though, the idea of a floating exchange rate was not broadly accepted. If I had to identify the single most important economic development of the last decades of the twentieth century I would put that first!

More broadly, my focus was not on the direct comparisons but on institutional responses in a Federal context with NSW playing the part of Greece. The comments actually link to different questions such as what should have been done, why wasn't it done, what should be done now.

More broadly, one of

Anonymous said...

Well Anne Summers agrees with you (I think):

http://www.smh.com.au/nsw/debt-needs-to-be-cut-for-economies-to-rebound-20150710-gi8wn0

kvd

Jim Belshaw said...

That piece is a little muddled kvd. Interesting that she picked up the Lang analogy, but then put a some what left interpretation on, thus taking it in a different direction.

Anonymous said...

Of course it's muddled - as are your thoughts, as are mine. But I just thought it interesting that she'd latched onto the same (wildly differing circumstances) as you had alluded to.

kvd