The fire this time

Monday, 2 February 2009 

Watching Gillard being interviewed the other night was a reminder just how comfortable the government is at the moment. This is unusual. Collapsing confidence and rising job losses would normally be tearing strips off the government’s popularity right now, just as it did for Whitlam, Fraser and Hawke at a similar stage in 1975, 1983 and 1991.

At the moment the government is benefiting from several factors that are highly unusual for this downturn. The first is there has never been such a consensus in the political class that this recession must not happen. Such a long way from the last recession that ‘we had to have’! Even if some space heads think recessions are somehow good for people’s moral fibre, or even if there are some in the Australian political class who claim a recession in the US is a justified cleansing of ‘extreme capitalism’ over there, no politician is saying that a recession should happen here.

There is not even the view that recession is a result of any imbalances in the Australian economy. Unlike previous recessions say in 1991, 1981 or 1975, there is almost no domestic political angle to it. This coming recession is being almost wholly seen as an international phenomenon.

As to why this one should necessarily be viewed as any more international than the others is not immediately clear from a purely economic viewpoint. It is not as though those other recessions did not also exactly coincide with recessions elsewhere around the world. Yet all of them were preceded by a domestic political row where the government of the day ended up being almost wholly blamed.

No-one is blaming Rudd for the coming recession. Nor are they even blaming Howard. The government’s line from a few months ago, that the previous government was to blame for structural weaknesses in the economy from neglecting productivity over the last decade, has been quietly dropped. In fact the reverse is happening. Both sides are falling over each other to claim how terrific and robust the Australian economy is.

Another unusual feature is that while it is widely accepted as an international phenomenon and nobody’s fault, at least here, there has never been so much action taken to prevent it. Already the $10.4bn package dwarfs any of the measures taken by previous governments for recessions that they were usually held responsible for – and more is on the way.

Furthermore, no-one seems that fussed whether it works or not. The Liberals have tried to criticise the package, when they are not caught up in the minutiae of process, but not only did they agree to it in the first place, every time they are pressed on whether they actually would not have handed cash out, unsurprisingly they back down.

Economies don’t operate in a controlled laboratory, so it is hard to tell what effect the package had. However, if the intention was to prevent a recession it looks to have failed. Yet the Liberals are not seriously taking Rudd to task for it.

The only alternative Turnbull is proposing to Rudd’s cash handouts are tax cuts, which is much the same thing. Actually Turnbull’s tax cuts proposal shows how much has changed even from the early 1990s. There is usually a double meaning when conservatives propose tax cuts. It is supposed to coincide with smaller government. However, what we saw over the last decade was that message eroded by Howard who pretended tax cuts were part of the right-wing package but actually increased government spending over most of his government. Howard posed as the great neo-Con reformer but he never was. His idolizing of Menzies should have been the clue, no self-respecting Thatcherite would have ever taken that wily old pump-primer as his model. In effect, Howard laid the ground for the collapse of the right’s pretence of an economic agenda over the last few months.

What we are seeing here is what happens when a downturn hits a political vacuum. It means firstly that it ties into no real political debate and so appears like an act of God from forces outside anyone’s control. But it also means that the government is going out if its way to still appear relevant while it does happen.

Sooner or later though the money will run out and the government is going to have to prepare for it. As NSW is showing, the opposition may be in no state to take advantage, but it doesn’t mean that the government will necessarily avoid decay. So it needs a political response for when the economic ones run out. As Peter Hartcher put his finger on it, Rudd’s ‘move to the left’, set out in his essay to be published next week, essentially reconfirms the direction he taken since coming to power – an alliance with the left, only made possible because its traditional agenda has gone.

At the same time Rudd plays with the Liberals in the same way Howard used to play with Labor’s links with the unions. By attacking unregulated markets, he forces the Liberals to decide: either defend it and look irrelevant, or disown it and stand for nothing. You need only to look at the editorial in The Weekend Australian arguing for less regulation while admitting there needs to be more of it in the financial markets, to see the trouble it can cause. For a decade Howard rode the vacuum in good times, we are now about to see how long Rudd can do it in the bad.

Posted by The Piping Shrike on Monday, 2 February 2009.

Filed under State of the parties

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3 responses to “The fire this time”

  1. Spam Box on 2nd February 2009 1:05 pm

    Excellent as always. As I do my rounds of the blogs every day, I’m always hoping for something new from you.
    Great work!

  2. charles on 2nd February 2009 7:46 pm

    I have wondered how much it has to do with the globalization of the media, and how much has to do with Turnbull, having nowhere to go, an ideas vacuum “Tax cuts, Yarn”.

  3. Ricc on 2nd February 2009 8:53 pm

    Rudd has on his side more powerful men than him, Obama for example, reiterating that the political system is broken and ideology is dead. Look at the repub wingnuts putting up an unprincipled fight against spending (and deficits) straight after their own man took the USA in record deficit territory.
    One thing I think Howard has got away with though is running up surpluses, and taking credit for them, and leaving the states to carry the can and having their infrastructure basically collapse.
    Family and friends from overseas developed countries can’t believe how bad our infrastructure is, and this will send a longer lasting message o/s than any admiration for our budget surpluses. Now is not the time for any government to win praise for being tight with money.

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