2 years on

I was asked to contribute a few words to a feature in The Age about how Australia has fared two years into the Rudd government. My bit dealt with the economy.

One thing is for sure, if there ever were a time when one can’t distinguish the soundness of economic management from things beyond control, the last two years would be it. A year ago, I could easily have imagined writing this assessment with the conclusion, “what’s the government of a small open economy to do?” Our expectation was for plummeting investment, high unemployment and a Government desperately trying to get things going again. Instead, the economy is strained but otherwise fine. The GFC has left hardly a dint. The Rudd government deserves considerable kudos for that.

But this also makes me nervous for the coming two years. There was and is much that still needs reform. We have proposals to deal with core issues like climate change, higher education and broadband but real implementation issues. And meanwhile there are challenges for general education, innovation and health care that remain without plans. Not to mention that the underpinnings of our system of financial regulation remain decidedly pre-GFC and need of far-reaching review. The Government’s job as economic manager remains unfinished.

The last time we found ourselves in a sound economic position, we also found ourselves with a government content to grow itself without growing its services. Surplus loving but without thinking long-term about the fundamentals. The next two years will tell us whether the Rudd Government is really something different.

3 thoughts on “2 years on”

  1. I’m not sure you are correct in apportioning considerable kudos to the Rudd government in its handling of the GFC.  Even Milton Friedman acknowledged if you throw a heap of money at a downturn, you are bound to at least partially redress it.

    Was the stimulus needed? Most likely. But the size and focus of the stimulus leave many people asking whether we got value for money. This should be the core of any economic analysis. The scarcity aspect.

    The best aspect of the government’s reaction was the bank guarantee offered at a fee, which established confidence in the banking system (even acknowledging the potential moral hazard). This negated the prospect of a belief-based crisis (ala Northern Rock).

    Otherwise, they could do little about the short term financing costs in international capital markets faced by larger firms.

    They worst aspect was how they destroyed public confidence with their grave assertions about the greatest calamity since the Great Depression, in effect propagating the crisis, when the truth is they had little real knowledge about Australia’s exposure. There has been little focus on the way the government managed expectations prior to the crisis.

    You don’t address any of these issues. Rather you say “We survived. Give the government credit.” I don’t think that gives the issue the serious contemplation it deserves.

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  2. “Surplus loving but without thinking long-term about the fundamentals.”
    I presume this is referring to the Howard Govt. Seems a little unfair. Whatever your thoughts on WorkChoices, it was hardly a failure to think of long-term fundamentals.
    In addition, haven’t the surpluses been a major reason why we have been able to tackle the GFC effectively? My memory is that the surpluses were mainly criticised for not being large enough.

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  3. I attended Ian Harper’s address last week on the ‘GFC and Ethics’. It was interesting to hear him speak very positively of the PM and the Treasurer’s response to the GFC in the form of the bank deposit guarantee.  I believe Ian’s assertion is correct, however I wonder if he was so sanguine about the current government’s decision to torpedo the recommendations’ on parallel book imports. Given an opportunity to make a decision favouring a majority of citizens, they chose to save some local firms that may have little long-term prospects and satisfy the local creative writing fraternity (while benefiting overseas-owned publishing houses and foreign writers) because the costs can be socialized over the entire community. 

    And Rudd’s rants on market liberalism, keeping in mind that his wife is the millionaire beneficiary (and deservedly so) of establishing a SME venture in a capitalist market, makes me think he should be condemned to one term only.

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