Hayden’s history lesson for Chalmers

Bill Hayden, who died on Saturday aged 90, was one of the few Whitlam government ministers to escape with a reputation worth having.

“We are no longer operating in that simple Keynesian world in which some reduction in unemployment could apparently always be purchased at the cost of some more inflation,” he declared in the 1975 budget speech after taking over as treasurer from the socialist Jim Cairns. “Today it is inflation itself which is the central problem. More inflation simply leads to more unemployment.”

Mr Hayden challenged Labor’s postwar Keynesian orthodoxy, embodied in the Chifley government’s 1945 Full Employment white paper, that fiscal pump priming could accept a bit more inflation in return for a bit less unemployment.

By then, a government spendathon, the 1973 Middle East oil shock and a union wage explosion had forced Gough Whitlam into a sharp monetary contraction which pushed the jobless rate above 5 per cent for the first time since World War II.

The Fraser government’s “fight inflation first strategy” then crashed onto the rocks of the second 1970s oil price shock and a second union-led wage explosion. As the Australian economy fell into its worst recession since WWII, the only remaining policy option became an incomes policy to convince the unions to restore the profit share of national income.