Caught in Howard’s “neoliberal” trap

Wednesday, 7 August 2013 

It is an historic fact that interest rates have always gone up under Labor governments over the last 30 years, because Labor governments spend more than they collect and drive budgets into deficit

JWH 29 August 2004

Within a day of writing how the economic debate has changed to the Liberals’ disadvantage, we had the perfect example of it – their response to the interest rate cut.

When Howard said in 2004 that he could guarantee interest rates would be lower under his government than Labor, there seemed a very good reason why he could do so. The idea was that Labor was more inclined to spend and higher borrowing meant higher rates.

This was essentially based on the long-held view that government’s controlled the economy and it was left to the markets, and the RBA, to give their verdict on it. Since Hawke and Keating liberalised capital markets, the view was that their verdict was important, which in turn led to a view from some that both Labor and Liberal had moved to the right and adopted “neoliberal” policies.

Yet the global financial crisis has turned that on its head. A recession that was caused by the collapse of the capital markets saw governments of any persuasion attempt to control it, not bow down to it. In the US, the Bush government’s immediate response was to pump billions into the financial system and effectively nationalise some of its major institutions. The GFC exposed the phoney triumphalism of the right over the preceding decade and that what had been seen as a victory of the right was in fact a victory of neither side of politics at all.

The intervention of the state into the capital markets has transformed the role of the central banks from being adjuncts of government economic policy to effectively driving it. However, this change was only made clear by the financial crisis, not caused by it. Even before the GFC, government were handing increasing powers and granting independence to central banks on the basis that governments were too “political” (untrustworthy) to decide on areas like interest rates for the good of all. It was the diminishing credibility of political parties that drove this rather than any change in central bank function or the underlying economy.

It is because this change is due to political factors than the financial crisis that we see it happening in Australia as well, but only yet emerging within an economic debate that still appears to be conducted on the terms that Howard set it. Understandably, the Coalition, still stuck in that framework, has been caught out by yesterday’s rate cut. Just how much things have changed can be seen in three ways by what happened yesterday.

The first was that the Coalition struggled to deal with the old formula high interest rates bad, low interest rates good. Howard in yet another of what may be regular reappearances (as Labor must hope, although last month’s combo of Howard and a US style rally might be too much to ask for) did a slippery when he said that “context was all” and he was only talking about it during a boom.

Actually he wasn’t. When Howard talked about low interest rates in 2004, what he was comparing it to was the previous Hawke/Keating recession of the early 1990s when interest rates went through the roof. That was the last of the “classic” recessions when the shortage of capital and the threat of inflation, as businesses tried to recover profits through higher prices, encouraged higher interest rates to squeeze it out.

As Keating complained at the time, the RBA’s hikes had failed to allow for the new flexibilities in labour that had come from him “pulling the teeth” out of the unions as he so eloquently described it. Since then inflation has been less of a problem and the RBA can do the opposite, lowering interest rates during a downturn to prop credit up without worrying about inflation.

Howard presumably knew this full well, indeed the low interest rates during his time were a direct result of the low rates imposed by the world’s central banks in the first “new” recession of 2000 – 2003. This “Goldilocks” economy was experienced throughout the developed world rather than just the result of the wonderful stewardship of Howard and the World’s Funniest Treasurer. It didn’t stop the Old Huckster trying it on though. But given the acceptance by the left and right that he was still in control, why not?

Hockey was, of course, absolutely right. The RBA cut rates this time because again the economy was slowing. The problem was that nobody held the government responsible for it but just expected empathy. As a result, Rudd and Labor quite wilfully twisted the words around to imply that the Liberals lacked it by saying lower interest rates were bad. The Liberals were clearly hoping that people would pick up the economy was slowing and blame the government for it. What they missed was that the government had already been saying exactly the same thing for the last few weeks, but nobody held them responsible. In reality what the Coalition was saying was no different to what the government was saying, but simply putting a negative spin on it.

The second thing that happened was even more striking and counter-intuitive; the government took no credit for it. Rudd in his interview almost glanced it, but never actually did. Obviously because the RBA cut rates due to the economy slowing, the government could hardly say it was a result of the actions it had taken, rather the reverse in fact. But nevertheless the government seemed to own the rate cut merely through the acknowledgement of what good it would do for borrowers (while ignoring the savers).

In fact what happened is the government seemed to identify with the RBA doing just one more thing, like the government putting money into extending school care hours, to help working families. This is the third aspect of the changing nature of the economic debate: having confirmed the independence of the bureaucracy, such as Treasury and the RBA, the government began now more closely identifying with them. This has become especially a problem for Hockey in recent days over his argy-bargy with Treasury.

It would seem that Hockey and the Coalition would be on quite firm ground in their criticism of Treasury. After all, Treasury’s forecasts have been all over the place over the last few months. Whoever is to blame, a Treasury that turns a surplus into a $5bn deficit in a matter of weeks does not look credible. Indeed it may not be. The problem for Hockey, as revealed on 730 last night, is who does have credibility? The Coalition will struggle with that because of the black hole last time and its refusal to publish figures this time. Yet this in turn is because its ideological agenda says cuts, but the political reality does not allow it. This lack of a social basis for political agendas is why we have seen them increasingly emasculated over the last decade by having to be submitted to independent auditors.

Having gone to such lengths to confirm the independence of the RBA and Treasury, we are now seeing on Labor’s side an increasing political synergy with them. But not as before. Not as institutions that are ultimately subservient to the government, but what could be described at best as an equal partnership or even subservience in the other direction. What it does seem though is that perhaps yesterday’s rate cut may have been a factor in going to the polls earlier, and on the hope that the next RBA decision, five days before polling day, will be equally beneficial. Could it be that the RBA had more influence over election timing than Sussex St?

Posted by The Piping Shrike on Wednesday, 7 August 2013.

Filed under Tactics

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Comments

14 responses to “Caught in Howard’s “neoliberal” trap”

  1. nick on 7th August 2013 8:05 am

    You bewdy, come on down Ruddy ….

    Bye bye Tony!

  2. Terry on 7th August 2013 10:00 am

    “We will decide what interest rates this country has, and the circumstances under which they are set.”

  3. Senexx on 7th August 2013 1:26 pm

    Funnily enough Terry, that is exactly what the RBA does.

  4. atomou on 7th August 2013 2:53 pm

    Not quite, Senexx!

    So far as dictation goes, their decisions barely rate as suggestions, let alone an encumbrance upon our dearly beloved friendly banks! That’s why they can do what they like with, not only interest rates but also all sorts of shyster products and that’s why, when the RBA announces a cut, the pollies in Govn’t shout and threaten and plead that all banks should pass it on. They don’t do anything of the kind, of course, when the RBA raises the rates!

    The RBA is absolutely impotent!

  5. Doug on 7th August 2013 7:42 pm

    Well no – The banks have some freedom to move but not that much – and again relatively speaking they are much kore constrained by regulation than in the US. Many of the shyster products have come from outside properly regulated areas of the financial markets.

  6. Avalon Dave on 7th August 2013 10:16 pm

    A Costello or Keating (or Howard, Hawke, Whitlam) would wipe the floor with these jokers.

    How did the “quality” of front benchers dive like this?

  7. Cavitation on 8th August 2013 10:53 am

    It seems the political parties are representing smaller and smaller special interest groups, and more broadly based coalitions are avoiding political involvement. The Liberal Party seems to be unaware that it is being boxed in as the representative of old white male millionaires. Murdoch’s increasing involvement as the main promoter of the Liberal Party is in danger of becoming a repeat of his efforts as running the American Republican Party. Can the Liberal’s distance themselves from the billionaire club? Do they see the dangers, and do they even care? This election is starting to turn into a contest between the ordinary woman and the very rich patriarchy, just like the last US election ended up being… It is certainly becoming an interesting election to watch.

  8. atomou on 8th August 2013 11:34 am

    “Can the Liberal’s distance themselves from the billionaire club?”

    Excellent observation, Cavitation.
    The answer is “no,” of course and that goes for both majors.
    They could, with their public propaganda by hushing up their connections with those white male millionaires but they are superglued to the bastards when it comes to their ideology and their political survival. They have become the factotums of the neo-capitalists.

    These two cabals run the same two races: To the top of the wealthy list for bum licking and to the bottom of the list of virtues when they want to win elections.

    And it’s pretty much the way of the West, these past five or decades.

  9. David Jackmanson on 10th August 2013 8:31 am

    If this election is between millionaire patriarchs and ordinary women, how does Therese Rein, a millionaire who made her money contracting with the government to pitilessly harass (sorry, I mean “manage”) jobseekers fit into that?

  10. atomou on 10th August 2013 2:50 pm

    David, whatever dost thou meanest, man? She fits perfectly into this election, into this Govn’t and into these two colluding cabals. The likes of her run politics in Oz. The likes of her and her likes dictate every policy in the country and every policy in this country (I just love repeating myself… just like you) is directed towards their own gullet and purse.
    Harassment of the poor and the worker is the prime ingredient of the deal; and it seems, the more you gloat about your religiosity, the more crassly harassing you are!

  11. No Crap App: w/b 5 Aug 2013 | No Crap App on 11th August 2013 11:41 am

    […] Piping Shrike: Caught in Howard’s ‘neoliberal trap’ […]

  12. atomou on 12th August 2013 9:59 am

    …more like “paleolithic” than “neoliberal” which is a euphemism of the former, the slogan of which is, “Let’s get back to the days when the shamans ruled the tribe,” type of godless theocracy!”
    Political atavism!

    Abbott wants to be known as the “Infrastructure Prime Minister!”
    Can no one stop this jerkwit?

  13. Bill on 16th August 2013 1:02 am

    ‘Fair dinkum’ … one of those phrases I pretty much detest. It sounds SO dated .. a bit like ‘cobber’. It strikes me as a blatant attempt to suggest that the user is somehow ‘more’ Australian than the other. Both Rudd & Abbott seem to be resorting to this (do they think we are ALL idiots/stuck in the time warp, when all but they seem to be using such phrases these days ? …)

    I see that Abbott refuses to release his costings till the final week of the election. No doubt, he wants to give the scrutinizers the least possible time to criticise/find more ‘black holes’… just ‘trust me’/’she’ll be right’ (yeah ….right !!(hah!!)

    Unfortunately, I have this horrible feeling that we are to be ‘blessed’ with Abbott as our next p.m. (a tough call to say who I detest more … him or Howard).

    In another life, he would probably be perfectly re-incarnated as a rottweiler/the perfect ‘attack dog’. Credit to him, he’s probably been the master of negativity/bashing the government of the day. Actually coming up with POLICIES/ how they’d resolve things, he’s pretty good at ducking and weaving/hiding behind his detestable front bench (they’ve kept him well wrapped in cotton wool/he seldom puts himself on the spot with a good interrogator, coz he KNOWS he’s likely to be found out!

    I can’t help thinking of that song ‘short memory, must have a short memory …) that the voters would want to bring this SHOWER …back in, for all the faults of the labor government.

    I think most of us probably know/realise, that the libs will always be looking after the BIG end of town/the ‘I’m alright Jacks’ .. and running down services to those left well off/sacking government employees.They are nearly all in it for themselves/power at any cost and any money they can accrue. Then they’ll let us all ‘eat cake’ till the next election rolls around (‘promises, promise’ ..).

    In my lifetime, I reckon George ‘Dubbya’ was the worst President. I reckon Abbott will be almost as nauseatingly bad (aagh!).

  14. atomou on 16th August 2013 9:45 am

    Talking about songs, Bill, can you remember this one?

    Party 1: Anything gruesome you can do I can do more gruesome! Fair Dinkum, Fair Dinkum, I can!

    Party 2: No you can’t, no you can’t no you can’t and I gotta zip, gotta zip, gotta ziiiiiip!

    Party 1: Yes, I can, yes I can, yes I can! Fair Dinkum, Fair Dinkum, I can!

    Party 1: Anything brutal you can be I can be even more brutal!
    Sooner or later, I’ll be more brutal than you! Fair Dinkum, Fair Dinkum, I can!

    Party 2: No you can’t, no you can’t no you can’t and I gotta zip, gotta zip, gotta ziiiiiip!

    Party 1: Yes, I can, yes I can, yes I can! Fair Dinkum, Fair Dinkum, I can!

    Party 1: Any law you can bend I can bend further!
    I can bend any law further than you!Fair Dinkum, Fair Dinkum, I can!

    Party 2: No you can’t, no you can’t no you can’t, and I gotta zip, gotta zip, gotta ziiiiiip!

    Party 1: Yes, I can, yes I can, yes I fair Dinkum, Fair Dinkum, can!

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