Monday, 5 January 2009
The financial press is almost unreadable these days.
Partly because of the bad news, but also because it is full of journalists falling over themselves to write articles along the lines of “It should have been obvious the global financial crisis was coming because etc. etc. …”. The Queen clearly thinks there should have been a warning, presumably so she could do a little switching in her portfolio. The Liberals have been blaming the RBA and the government for not anticipating what was coming and raising interest rates in the face of a slowdown.
They are being a little unfair on the RBA. In reality Governor Stevens was warning of the threat of a slowdown as a counter-acting factor on inflation over a year ago. It was more the press and the government that chose a one-sided reading of what Stevens said. The government leadership was hyping the inflation threat in the first few months after coming to power as a political weapon not only against the former government but also to clamp down on any spending plans in the party that had just come to power.
Accusations that the economic crisis should have been anticipated assume that something should have been done if it had. Like what?
Economic policy is in a strange limbo at the moment. What we have is less an economic strategy than action to put off having to think of one. The tax breaks, the interest rate cuts and special spending measures all share the same purpose – to tide the economy over and restore confidence in the short term until things return to normal. As Rudd keeps saying, he only believed in running a surplus over the economic cycle and at this stage in the cycle it makes sense to run it down before building it back up when things get better.
In other words, all of the measures proposed so far assume that we are not in a crisis. A crisis means that things cannot go on as before, whereas all of the actions so far assume that this is just a turn in the same old cycle. If this was a crisis, then action would need to be taken that meant that things would not be the same again.
The only area we are hearing ‘never again’ is in the financial markets and especially the end to the old practices of Rudd’s ‘extreme capitalism’ in excessive lending and risk-taking on Wall Street. But we already have that. The old Wall Street has gone for good and banks are taking the dangers of lending well and truly to heart. What we are finding in countries like the US is just how reliant the so-called ‘real’ economy was on it. In fact the reliance on credit is driving the only major reform we are seeing so far from governments, a reluctant restructuring of the banking system where governments are being forced into taking a bigger direct role to get credit going again. If that doesn’t work, further structural reform will have to happen.
How prepared are governments for this? On one hand there seems a lot of flexibility. Just over twelve months ago Rudd was telling a Labor campaign launch that ‘this reckless spending must stop’. According to the media at that time, acting like a mini-Howard was a necessary hoop any aspiring Labor Prime Minister had to jump through, so much had Howard’s agenda supposedly set the rules. A year later that Labor Prime Minster can now announce a massive unprecedented cash hand-out without even having to show we are heading for even a run-of-the-mill recession.
This flexibility comes from one reason, the end of the old politics. Just as the long-running decline of the old left could allow Rudd to tell a Labor gathering their spending plans were off the agenda, so could the recent about-face be allowed by the decline of the right, which had been just as long running but only recently exposed by the end of the Howard charade and the full-scale rout as the financial crisis hit.
But the flexibility comes at a price. No ties means, for example, not having the unions to call on to keep wages stagnant as they did during the restructuring of Hawke and Keating’s time or bear the brunt of bringing down the tariff wall as they did during Whitlam’s. What we have is a government with the flexibility to carry out the New Sensitive gestures of the last few months with minimal political flak, but perhaps finding it difficult to get the support to carry out something a bit less sensitive in the future.
Turnbull would love such flexibility. It is quite clear what his current strategy is – to place the Liberals on the slightly dry side of fiscal rectitude and keep reminding everyone of how good things were under Howard. It has the advantage of keeping his side together, especially the old guard, while hoping for the polls to fall into his lap if things start to go wrong.
But there are two problems with this. Firstly, as Grattan wrote on the weekend, it is not assured that the government will get the flak if things go wrong. It is hard to get the blame if you are not responsible, and there has never been a time when an Australian government looks less responsible for the economy as now. Secondly, it means the Liberals being locked into the Howard legacy and endless repeats of The Howard Years, precisely the opposite direction that Turnbull was telling everyone he wanted to go.
Posted by The Piping Shrike on Monday, 5 January 2009.Filed under State of the parties