The genie’s back out of the bottle

Wednesday, 6 February 2008 

The inflation crisis is starting to get out of control.

Not the inflation (which is only 3.6% for chrissake!), but the political management of it.

Given that the government is standing at 60%+ in the polls and the Liberals can barely find a single issue they can agree on (anyone think of one?) Rudd’s performance on The 7.30 Report on Monday night was surprisingly awkward. The problem is that the ‘inflation crisis’ tactic, something he picked up during the election campaign to use against Howard and his own party, is in danger of coming unstuck.

When Rudd used the economy against Howard before the last election, it was not to launch a critique of the government’s economic policies, it was to claim that it was out of touch. The problem was not Costello’s policies but that he was insensitive to the impact of rising prices and cost of home borrowings on ordinary voters. The implicit assumption behind Rudd’s attack was that there was little government could actually do on the economy but at least they could be sympathetic. Costello, who thought the argument was still about the prowess of his economic management, only made it worse by denying a problem existed.

However, after the election, Rudd’s use of the economy began to change. What started as an anti-politics attack on Howard, turned into a justification for a program to clamp down on the agenda of his own party. As Swan ran around hyping up the inflation crisis and claiming the ‘inflation genie was out of the bottle’, Tanner began swinging the axe on government spending. Rudd used the inflation scare to claim that the past government overspent and clamp down on any spending claims from his party other than the election promises (even if they unfortunately included a $34bn fiscal injection of tax cuts). As a result, Rudd is giving the distinct impression that something can be done about inflation and whatever it is, the previous government didn’t do it.

The Liberals have a lot of problems at the moment, but one they do not have is being blamed for Australia’s economic difficulties. Rudd’s problem in making that charge is that there is no obvious political point that can go with it. ‘Out of touch’ sticks to Howard’s government, ‘spending too much’ does not. Even the moaning that Costello did about Howard’s pre-election spending was more about Howard being a ‘clever’ politician rather than economically incompetent.

By making it appear as though he has a strategy to deal with inflation, Rudd may have buried the ALP’s big spenders, but he has created several unintended consequences. Firstly, he is finding the same charge he made against Howard now coming back to him. As Kerry O’Brien asked: why, after promising to end the blame game, is he now blaming the previous government?

Secondly, he is raising expectations that he can do something about it against which his five point anti-inflation plan sounds vague and faraway in the distance.

Thirdly, he is giving the Reserve Bank powers it just doesn’t have. Over the last decade Australian politicians have increasingly masked their economic impotence behind their ‘respect’ for the independence of the RBA, as though if they didn’t respect it, there would be something they are itching to do. This then places increasing political pressure on the RBA to use their blunt instrument so that a barely existent inflation problem becomes a more annoying interest rate problem or as an economist said last night it’s “like worrying about the boogie man when you’re being seriously mugged by a real attacker.”

Finally, if there really is something that Australian politicians can do about inflation, rather than just watch to see how the economic balance between the US’s problems and China’s growth work through, then even the Liberals have a solution. Suddenly the party has revived and found agreement on one policy that even the leader was disowning a few weeks ago, Workchoices, an irrelevance on the industrial relations landscape but a union-bashing initiative that reminds the Liberals of the reason for their party’s existence. If they are starting to re-discover that, things have seriously gone awry.

Posted by The Piping Shrike on Wednesday, 6 February 2008.

Filed under Tactics

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