Demands that the Albanese government do nothing amid the energy crisis are absurd

Most economists and conservative media outlets are demanding the Albanese government spends no taxpayer funds in response to the energy crisis.

They are wrong, both politically and economically.

First, the politics: In a crisis, voters rightly expect their politicians to do more than shrug their shoulders and say there’s nothing they can do.

Economists who demand no new spending because it is considered fiscally irresponsible and inflationary would never run for Parliament because it would be too risky for them. They would rather sit in their armchairs pontificating.

Take the case of the halving of the fuel excise.

Economists complain this would be inflationary, forcing the Reserve Bank to increase interest rates again. Yet cutting the fuel excise itself reduces the inflation rate.

True, it doesn’t reduce the so-called trimmed mean inflation rate that the Reserve Bank concentrates on. But to increase the trimmed mean rate, the cut in fuel excise would need to stimulate the economy substantially, increasing the risk of a wage-price spiral.

Would motorists decide to go on holidays and travel long distances in response to the excise cut when fuel prices will remain high from the oil shortage? No, they wouldn’t.

In economist language, the price elasticity of demand for petrol is low.

And would vehicle owners, amid a global crisis, rush off and spend the modest reduction in fuel costs – that are still well above pre-crisis levels – by going out to restaurants, forcing restauranteurs to give their staff a pay rise?

Or maybe economists believe the modest and temporary cost to the budget of $2.5 billion will force the international ratings agencies to downgrade Australia’s Triple A credit rating? Implausible.

Economists are warning of stagflation – high unemployment combined with high inflation, as occurred in the late-1970s and early-1980s.

Back then the incoming Hawke government needed to deal with the double-digit unemployment and double-digit inflation it inherited.

It did so through the Prices and Incomes Accord with the trade union movement.

The government and unions agreed on increases in the social wage – such as through the introduction of Medicare and financial support for low-income parents trying to keep their children at school – in exchange for moderation in wage claims.

Now, more than 35 years later, economists are sweating again about a wage explosion during a global recession. They literally are living in the 70s.

If the war in Iran has taught us anything about economics, it is that the laws of comparative advantage are well suited to peaceful times but less so to times of conflict and geopolitical rivalry.

The idea behind countries specialising in activities in which they have a comparative advantage and trading with each other is a noble one. It was designed to spread prosperity and to promote geopolitical stability by economically integrating nations.

The world trading rules, established soon after the Second World War, were designed to prevent a Third World War. But if we are to live in a world marred by conflict, the development of sovereign capability will be essential.

In practical terms, that means retaining steelmaking capacity at Whyalla and aluminium refining at the Tomago smelter in the Hunter Valley. It also requires the extraction and processing of critical minerals with which Australia is well endowed.

But it doesn’t mean re-establishing car-making behind high tariff walls, as seems to be the plan of deputy leader of the Opposition Andrew Hastie.

If the war in Iran has taught us nothing else, it is the value of good relations with our nearer neighbours such as Singapore, Korea, Japan and China – selling them liquid natural gas while importing refined petroleum from them.

The world has changed and Australia must change with it. But our politicians shrugging their shoulders and telling the Australian people they are powerless to do anything, as effectively recommended by many economists and much of the media, just won’t cut it.