Wednesday, 15 October 2008
Is Australia in economic crisis or not? First Rudd gave us reassurances that Australia’s banking system is the strongest in the world before taking the sort of action adopted by governments whose banking systems are close to collapse. Now we have an unprecedented economic stimulus to an economy that only a few days ago Rudd was assuring us would have growth next year with a ‘two in front of it’.
As Swan said yesterday, the world has changed over the last fortnight. However, what has happened is not just that the financial crisis has deepened but that the political classes around the world have become caught up in it. Starting from the US House of Reps turning down Bush’s bail-out plan, the political class’s authority has become entangled in the financial mess. As the markets show their lack of faith in the governments’ ability to do anything effective, the fire-fighting has become more and more about them than the financial crisis itself.
Under such pressure the response of governments around the world is to act in ways that may give short-term relief to the financial markets and make it look as though the governments are doing something, but it takes them to a place they may not want to go. Not only are governments throwing overboard their own rules about fiscal restraint on which western politics has been running on since the 1980s, but probably more troublesome in the long term, they are being drawn into running their banking systems. All of them have acted on their own, but often wrapping it up with the occasional communiqué and photo-call where political necessity demands it to look like coordinated international action.
Rudd’s bail-out of the banks and the stimulation package show that while Australia may be relatively protected from the financial and economic crisis, its political class is caught up in the same problems of authority as the others. Here there is no immediate need to pretend that there is coordinated international action. The government’s banking guarantee was naked self interest to support Australian banks competing over funding on the wholesale markets. It did nothing to support coordinated action but undermined it and now forces the competitors of Australian banks to seek more support from their governments in the scramble for scarce wholesale funding.
But at least that had some economic rationale. The $10bn hand-out is harder to fathom from an economic viewpoint. It is always nice to see pensioners and low income earners get a hand-out. Indeed it is a shame that we had to wait for a financial crisis for it to happen. But it makes little sense from the way the government has described the economic situation. This is a ‘kick start’ for an economy that was not in trouble according to Rudd four days ago (and all we have had since is a record-breaking Wall Street rally). The Liberals’ $30 a week that needed to wait until a serious review has now become a $1400 hand-out. It is no surprise that Rudd has been so coy to explain the revised Treasury forecasts that underpin such drastic action.
It is also not a surprise that Rudd is getting support from the Liberals for something that goes completely against what their side of politics is supposed to believe. Turnbull has backed himself in a corner carrying on Nelson’s pseudo-populism, so his bipartisanship now was never a choice. But it also shows how hollow the right’s position has become through a decade of phoney cultural wars. If a free-marketeer like Janet Albrechtsen applauds Rudd’s bank bail-out she has clearly not thought it through. If the government is guaranteeing the bank’s raising of funding in the wholesale markets, it will inevitably place greater conditions on who they lend it to. That is the problem with the governments move to prop up the banking system around the world, it will inevitably draw them into getting caught up more with the banking operations, especially as there is now so much political capital tied up with them.
Rudd’s appearance on a national broadcast puts us on war-time footing before a shot has been even fired. There is a neat parallel with the last such broadcast in 2003, Howard announcing Australia’s token commitment to Iraq. Just as it started with Bush’s Armageddon plea to Congress three weeks ago, a government looking for authority may initially reassure us but then talks and acts in a way that creates even more uncertainty and so creates the need for more reassurance and so it goes around again. The difference is that this time such fear-raising has an immediate effect on the financial system and so made the vicious cycle even more so.
At least in 2003 there were those who doubted the scare-mongering about Saddam’s Weapons of Mass Destruction (although not as many as some like now to pretend). In 2008, no matter what the political persuasion or economic viewpoint, all such considerations have been put aside for the one goal: to manage our fragile sensibilities and nerves as though that was the cause of the problem. We are all psychologists now.
Posted by The Piping Shrike on Wednesday, 15 October 2008.Filed under Tactics