Why Rudd and Rees are rewriting history
Have you noticed that, though Kevin Rudd & Associates are too delicate to utter that dirty word “deficit”, they’re all too ready to use another D-word, Depression – as in “worst crisis since the Great Depression”?
So he’s going to take us through a slump big enough to be compared to the 1930s and do it all with the budget staying in surplus?
Wrong on both counts. Whatever lies ahead won’t be nearly bad enough to be compared with the Depression but, even so, the budget will fall into deficit soon enough and the deficit will get quite large.
John Howard is right: there’s no comparison with the 1930s and Rudd should stop frightening people by making it. Every time he says that D-word he’s giving ammunition to those accusing him of talking the economy down.
So why’s he doing something so ill-advised? Perhaps because he’s still too new to the job to realise that, in the mouth of a prime minister, words are bullets.
But more likely because he’s trying to build up the severity of the global financial crisis in people’s minds so it stays in their memory long enough to cover all the bad economic news he knows lies ahead.
He’s saying, don’t think the GFC (as he calls it – another indiscretion) has been and gone, we’ll be getting the bill for it for years. And every bad thing that happens in the economy will have been caused by it.
The point is that no one in their right mind could blame Rudd or the Labor Party for the global financial crisis, so it provides a wonderful alibi, a shield that protects Labor from getting the blame for unpleasantness in the economy.
So why not use the GFC shield to protect the Government from getting the blame for the budget’s imminent descent into deficit? Why not say the GFC did it to us?
Well, no doubt when the time comes Rudd & Co will. Until then, however, the Government is paralysed by its inferiority complex – its belief that everyone thinks Labor is a hopeless economic manager.
What Wayne Swan doesn’t seem to have realised is that, with all his inept dodging around the deficit-word, he’s displaying Labor’s inferiority complex for all to see.
An old hand advised me years ago that, when you appear on television, it doesn’t matter much what you say because it won’t be remembered. The punters are always too busy trying to judge from your body language whether you’re lying.
Swan looks like he’s a man with a guilty conscience who’s trying to hide something. It’s little wonder the press gallery keeps pressing him on the topic.
Rudd boasts of his Government’s “decisive” response to the crisis, but what we’re getting on the deficit question is timidity. This is a government frightened by the populist nonsense being peddled by an unscrupulous Opposition.
The stupidest part of it is, Swan is doing all he can to ensure that, when the inevitable happens, the Opposition, the media and the punters will see it as a failure of policy. The other thing I hope you’ve noticed is the way Rudd & Co are using the GFC to rewrite economic history.
The story they’d like us to remember is that everything in the economy was travelling fine until the wicked world threw the GFC at us and stuffed everything.
That’s not quite the way it was. Before the global crisis got serious the economy was perilously close to full capacity, the underlying inflation rate had hit 4.7 per cent and the official interest rate had been jacked up to 7.25 per cent, its highest in 13 years.
The economy had been slowing sharply since the beginning of this year and everyone knew a significant rise in unemployment was on the way. All that was the story before the collapse of Lehman Brothers in mid-September, when the global financial system started to rock on its foundations and scare the pants off people.
You’d never know that from what you hear now, however. The mid-year economic and fiscal outlook document, for instance, gives the GFC all the blame for the downward revisions to its forecasts for growth and employment.
It also blames all of the deterioration in the forecast budget balance on the GFC. In explaining the expected collapse in capital gains tax collections it notes that, between budget time and late October, the share market fell by 1500 points.
But my rough figuring suggests that about a third of that decline had occurred before the collapse of Lehman Bros.
That figure of a third isn’t a bad one to illustrate my point. Perhaps as much as a third of the deterioration in growth and employment we’re about to experience can be attributed to essentially domestic causes: the policy-induced slowdown brought about to reduce inflation pressure in a near-fully employed economy.
But now the Government’s spin is directed towards obliterating those domestic factors from our memory.
Why? Because when the GFC gets the blame there can be no argument: it’s not the Rudd Government’s fault.
When, however, you acknowledge the purely domestic component of the problem – including our high level of household indebtedness – you get into a much more contentious argument about whether this Government or the last one should be blamed.
So keep an eye out: the GFC is being used as the scapegoat to cover a multitude of unrelated sins. Already it’s been used to justify the motor vehicle industry’s $6.2 billion handout, even though the Government’s determination to prop up ailing manufacturers has been evident since before the election.
And even Nathan Rees and his Treasurer have had the effrontery to blame the GFC for a mini-budget necessitated by their backroom union bosses’ refusal to permit the privatisation of the power stations.
Ross Gittins is the Herald’s Economics Editor.