Wednesday, 16 January 2008
Why on earth is everyone so keen to talk down the economy?
The RBA expects the inflation dragon to pop its head a bit above 3% for a few months this year before sinking back into the 2-3% range in the second half. Expectations of easing inflation are based partly on a result of last year’s rate hikes as well as an anticipated US slowdown taking some of the steam out of the Australian economy. Australian GDP growth is expected to slow from 3.5% in 2008/9, but still to a very respectable 3% in 2009/10.
The RBA’s scenario seems reasonable enough. It is certainly easier to follow than some articles that have recently appeared in the press that forecast a global recession (including China?) and higher inflation, so that Australia apparently not only has to worry about inflation from an economy growing too fast but, er, the consequences of a slowdown as well. This looks less like the stagflation of the 1970s but the chuck-everything-bad-in-the-pot of 2008.
When Howard and Costello suddenly changed the theme of their campaign at the beginning of November from ‘Go for Growth’ to dire warnings about a Tsunami, it was seen less as an economic assessment than a transparent political ploy by a struggling government. After Howard’s first tried it on during an Insiders interview on 4 November, Milne commented that the about-face was an audacious move but worth a try. When Rudd picked up the theme himself at the Labor party launch a few weeks later, it was again seen as political, in this case Rudd making Howard’s spending promises look irresponsible. As Howard complained at the time, Rudd’s launch tactic wasn’t an economic move as his total campaign spending promises weren’t much different from the coalition’s, he was just playing politics.
It also did not escape commentators’ notice at the time of the launch that Rudd’s use of Howard’s scare-mongering was also directed at the party he was addressing. His call that “this reckless spending must stop” was targeted at the party’s spending traditions, personified in the audience by the presence of EG Whitlam.
Since then, while there may have been more bad news from the US, the politics is still very much there. Now with Howard out of the way, the party is the main target as the leadership uses the economic scare to restrict any alternative agendas in the party. It is also useful to lower expectations among the public itself. It might be why, for example, the new Treasurer keeps talking about this ‘cancer’ of inflation, as he calls it, being above the RBA’s 2-3% band over a year longer than the RBA itself does. However, as this is still political, the $31bn of tax cuts promised during the campaign naturally remain untouched, despite the dire warnings.
The Labor leadership’s political interest in hyping up economic fears is fairly clear. But why have such tactics become so widely accepted since the election? Although inflation scares are being used against the party, it has already lost its ability to impose itself. A few weeks before the Labor launch there was a fairly pathetic display of the party trying to assert itself over the leadership in a jostle for front bench positions, which led to a slap-down from Rudd as he claimed even greater control over choosing the Ministry. Rudd’s leadership win was the result of a party that realised it could not go back to the past (Beazley) but had no real idea on the way forward. The result was a blank cheque for the leadership. Latham used it to make it up as he went along, Rudd used it to take over power from the party.
Outside the party, the acceptance of such scare-mongering seems to be part of the strange reaction since the election to Rudd’s coup. With the object of focus for the Howard-haters now gone, it has all gone quiet. Even allowing for the holidays, there is much less talk about the advent of this Labor government than would be expected for such a rare political event. As the ALP and its programme are pushed from power, reaction seems to oscillate between a bit of wistful Obama-dreaming of what might have been and a resigned throw up of hands that says, given such economic catastrophe on the horizon, such plans were never going to be possible anyway.
Posted by The Piping Shrike on Wednesday, 16 January 2008.Filed under State of the parties