Hey, Mr. Tallyman...

Another election, another election budget. As I write, the commentariat are busy unpicking Josh Frydenberg’s fourth and last Budget. And he and the Prime Minister are soft-shoe shuffling across the nation spruiking its wares. Morrison might just as well swap his Hawaiian shirt for a Jamaican one tied under the breastbone and exchange his ukulele for a bongo drum. As he and the Treasurer count their bananas to the beat of a fast-approaching date with the electorate, they find themselves in a bind. There are too many bananas to dish out in time. Those that remain in the shed will soon rot away once the votes are in and counted. A good banana is a ripe banana. What’s the good of an unexpected bumper crop if they can’t be traded for votes?

As I watched the Treasurer present his Budget in Parliament, I had a sudden flashback. As an undergraduate studying pure maths, I was introduced to four amazing mathematical ideas that my high school teachers had never mentioned, all created by geniuses in the eighteenth and nineteenth centuries. First, I was amazed to find out that there was a non-Euclidean geometry which could be applied to parallel lines like longitude on a sphere. Second, I found out that there were several degrees of infinity! Number theory opened up a pandora box of paradoxes and possibilities, including the mysteries of prime numbers and the Fibonacci Sequence. Third, Boolean logic seemed so obvious but powerful. Finally – and this is where I literally sat in the lecture theatre wide-eyed and open mouthed – there was something called imaginary numbers. I had vaguely been aware of irrational numbers, as in the square root of two being the hypotenuse of a right-angled triangle with both sides equal to one. Apparently the follower who pointed this out to Pythagoras was quietly dropped in a bag out to sea. But imaginary numbers? Apparently so. Multiply any real number by the square root of minus one and you get an imaginary outcome. But as you all know there is no way of getting the square root of a negative number. It’s imaginary. But not purposeless. Apparently – and here my memory fades – calculations using imaginaries have real world applications in electronics and other fields.

Well, you know where I’m heading. Frydenberg’s Budget is full of imaginary numbers, but they have been presented with the clear purpose of winning an election. With an unexpected boom in revenue flowing from minerals exports and falling unemployment, the budget deficit this year has been cut from its most recent forecast by some $ 30 billion. The total revision down in deficit’s over the forward estimates to 2025-26 is more than $ 100 billion. That’s compared to 2021 forecasts, not those of Josh’s first crack in 2019 that forecast rising budget surpluses over that period, with coffee mugs to celebrate. Some of this largess is being shovelled out the door before the election but the rest mentally banked in the form of falling future deficits. I say ‘mentally banked’, because they are imaginary, dependent on the assumptions of future unkown knowns and unkown unknowns. Just as the assumptions or ‘parameters’ underlying earlier budgets proved wrong in time, so too will these ones – it’s the only reasonable prediction to make based on the past. The future is radically open, the land of what John Kay and Mervyn King call ‘radical uncertainty’. Don’t fret over the welter of dollar figures flying around; they are imaginary.

Forecasting is a mug’s game, the world of charlatans. But we all do it. As a species, we hate uncertainty and find all sorts of ways of hedging against it. Some like taking out insurance is effective in many cases. But try telling that to those living and working in flood and fire prone regions when some future exigencies become literally uninsurable or only so at impossibly high premia.  The unexpected and unforeseen international developments dumped a large fiscal bonus on the Morrison government at an opportune time. But coming after the fiscal blowout caused by the pandemic, another foreseeable but not forecast shock, the government is unable to pull out all stops to bribe the electorate. Caught by its conventional rhetoric of sound economic management, with the wails of economists echoing in their ears, Morrison and Frydenberg must be seen to temper their natural urge to splash out like Howard and Rudd did before them. The bogey of inflation looms large in the imagination. Australia looks like being ‘locked in the red’ for a decade (I’d buy that mug), though I might be wrong; your guess is as good as mine and Treasury’s.

You don’t have to be a zealous convert to modern monetary theory to realise that federal government debt, even seemingly scary numbers like a trillion dollars, is easily manageable in stable democracies that control their own fiat currencies. Current debt can always be repaid, rescheduled, and serviced in that currency as the economy grows. The more productive private and public investment is, the more manageable the debt, however large. Future generations don’t have to ‘pay back’ today’s debt, they just need to be productively employed, and for that governments today need to set appropriate policies in place and fund them. The idea that public debt burdens our grandchildren is another imaginary, but one that is very useful for conservative governments and their powerful supporters whose real aim is to cut taxes and shrink government expenditures.

What seems to have been missed in the generally joyful celebration of improving budget forecasts is the fact that the Budget has ignored not only key areas of economic and social policy like improving the wages of aged care workers and labour skills (a nod to hiring apprenticeships excluded), but also done nothing, well nothing positive, to accelerate reductions in carbo emissions. Indeed, the revenue bonanza flowing to fossil fuel exporters from the tragic events in the Ukraine will swell the coffers of coal and gas companies and enable them to expand drawing on enhanced retained profits to replace the retreat of lenders from the sector. This is a perfect time in a rational world for the government to appropriate more of the revenue gold strike from the mining companies to fund the transition to a carbon-free world, a double win, limiting new coal developments and boosting clean alternatives. This is an opportunity that won’t last once normal transmission is resumed in commodity markets. Anyone for a super profits tax? More generally, even in the United States, the political climate is shifting towards imposing higher taxes on the super-rich. Biden’s billionaire tax could be tailored to divest some of our super-wealthy families of some of their abundance. I mentioned tax twice, but think I got away with it. The imaginaries missing from this election budget are the costs of not tackling climate change, of not planning and executing the timely transition to net zero, of not diversifying our economy away from an over-reliance on fossil fuels.

That leads to the greatest exercise in fiddling with imaginary numbers – the budget’s assumptions about wage growth. Here we are in the realm of 1980s ‘supply-side’, ‘ trickle down voodoo economics, the hope against experience that falling official unemployment will spark a bidding war for labour by desperate employers. This morphed in the 1990s into a fetishized love affair with the NAIRU, the nonaccelerating inflation rate of unemployment, initially thought to be 7%, then 6%, then 5% and now below 4%. Just drive the economy wide rate down below 4% (another imaginary), and wage growth will start automatically. Hence, the triumph with which Frydenberg has heralded the budget’s assumption of a rate of 3.75 next fiscal year. What this obeisance to the conventional economic wisdom of the late twentieth century misses, are the structural changes in the economy, labour market and class structure of Australia today and going forward. Decades of neoliberal reform have hollowed out secure middle income jobs, resulting in job insecurity, income polarisation and growing wealth inequality over time. The economist Bob Gregory was the first to point to the trend towards ‘the disappearing middle’ in the 1980s. The trend has accelerated in the current century, temporarily muted by the pandemic’s fiscal safety net and restricted immigration. Once, migration and foreign student numbers rise again, job insecurity and incomes at the lower reaches of the labour market are likely to fall relative to the incomes of skilled and highly educated workers in industry, finance, the professions and the public service. Real wages in an era of rising inflation will continue to tank for the increasing number of households dependent on casual, parttime jobs.

It’s easy to be fooled by averages. In an increasingly fragmented world, society -wide averages mean little; it’s the variation and skewness of the distribution of income, wealth and opportunity that matters. Try telling people recovering from yet another flood that they never had it so good, that average wages will rise faster than prices in a year or two, just wait. Or what does that statistic mean to an unskilled worker who has had her hours reduced in the three part time casual jobs she works to pay for rising rent and food prices; never mind petrol, the car went ages ago. You can conjure your own examples, it’s not hard. Reliance on the automatic potency of wage growth represents the total dereliction of political leadership and the total enslavement to the myth of market omniscience. It is the perfect refuge for a government mired in complacency and denial. One consequence of the dreadful impact of the pandemic is that it exploded the myth that governments can’t and shouldn’t step in when the market fails. Bush fires and floods have impressed a similar lesson, one that the Morrison government has consistently failed to heed, until forced by public pressure to eventually respond.

Treasurer Frydenberg tells tenants facing rent hikes to buy a house. But he doesn’t say how or where. It’s reminiscent of one of his predecessors who suggested that in order to buy a house you should get a well-paying job. The one measure on ‘housing affordability’ in this Budget is the offer to extend government loan guarantees to households stumping up two or five per cent equity. This is a cruel hoax, one that caused millions of over-indebted Americans to lose their homes during the global financial crisis. Mortgage rates are on the rise. Households with five percent equity will soon feel the pinch on household budgets. “Come in, the water’s fine”, shouts the government. “But watch out for sharks.”

That leads us back to the realm of imaginary numbers. This budget is chock full of them. Don’t be lulled by the bromide of fake certainty that is exuded by hundreds of pages of carefully curated numbers. We all hang onto numbers because they provide some sort of psychological anchor in stormy weather. Don’t be fooled by the fallacy of misplaced concreteness. Far better to face reality and get through as best we can. The world is messy, the future open and susceptible to collective efforts to improve current inequities, bit by bit. But isn’t a road map, any map to the future better than none? Well, would you want a map that ended up with you at the council tip, when you wanted to get to the beach? Wouldn’t you prefer a systematic attempt to reconnoitre the area and devise alternative ways of getting to where you want to be?