History with a soft focus

History repeats, first as stagflation then as subprime. The global meltdown of 1974-75 is connected to the Great Recession by the common denominator of American hubris. Just swap Iraq for Vietnam, the credit bubble for the Great Society, and China for OPEC. Each crisis began with US excess and spread to Europe and the British Isles by guilt of association. In each case the international economy was paralysed by a mismatch between deficit and surplus nations. The deficit nations in the West indulged their citizens by telling them to keep spending. The surplus nations in the East punished their citizens by refusing to spread their new-found wealth. So customer and banker, West and East, continued to warp the global financial system until both sides lost. In 1974-75 it was too much inflation; in 2008-09 it was too much debt that crashed the global economy. (pp 42-43)

This is just so wrong it is hard to know where to start. Take the writing. In what way can a crisis spread "by guilt of association"? It rolls off the tongue, but what does it mean - that other countries got up and left the room leaving the US, UK and Europe alone together?

How can there be a "mismatch between deficit and surplus nations"? Particularly as one class of nation is lending to the other, they must be matched. What does he mean "The surplus nations in the East punished their citizens by refusing to spread their new-found wealth"? My memories of the 70s were of "petro-dollars" from the oil states being spread around the world by sunglass-wearing Saudis travelling first class with trains of well-paid retainers; while my knowledge of the present is that China not only invests heavily abroad, but is developing an internal consumer culture as raucous as anything in the West in cities like Shanghai. How are the Chinese, and then the Arabs "punishing their citizens"?

And then in the last sentence he completely misses the link between inflation, debt and money supply. There is a link between the GFC and the 70s stagflation, and that is that both will only be cured by effective monetary policy.

This is not an isolated purple patch. There are plenty of others, such as the paragraph on p 81 where he compares the US bombing Cambodia and overthrowing Allende; the Turks invading Cyprus; and the Indonesians invading East Timor to John Kerr dismissing Whitlam. Please!

The book is the product not just of interrogation (and occasional torture) of the facts, but of interviews with five of Australia's six prime ministers who "governed through Australia's transformation" from Gough Whitlam to Kevin Rudd. Whitlam declined an interview but referred Megalogenis to his speech writer Graham Freudenberg.

This is probably where its greatest value is. Assuming recollections are accurate I had to unlearn some things about the Whitlam era (Whitlam comes out better and Cairns even worse than I imagined), and even about the Fraser years where I was an active participant and thought I knew what was going on.

The later sections of the book suggest that the author was running up against deadlines, and perhaps word limits, and the most unsatisfactory part of it is the cursory treatment it gives to the global financial crisis.

Megalogenis uncritically accepts the "cash splash" theory of how we survived when this is manifestly wrong. While some splash may have helped, the fact that we were still spending it years after the GFC demonstrates that most of it was unnecessary, even if some was.

His analysis almost completely ignores the real factors, almost all of which come from previous administrations rather than Rudd's.

Australia survived the GFC intact for a number of reasons. Certainly we had markets for our minerals in China, and China did not slow, although as Megalogenis points out, mining was not such a big contributor to economic success right at the time of the GFC.

But we also had a very flexible exchange rate (a Hawke initiative) and the dollar responded to the crisis by diving down to lows not much higher than when Keating made his now ancient, and famous, "Banana Republic" comment, thus boosting export receipts, including minerals, and lowering the cost of imports, most notably oil.