The myth of the economic credibility of the Liberal Party

Seriously, if after hearing what Howard and Costello have had to say, you have the size of your housing repayments or the pay packet you earn riding on this lot (The Government), then you are being mislead. There is no reason at all to think that the Libs will deliver “strong economic management” for you.

For most Australians, let’s face it, the credibility of the Government on the economy stems from gut feelings, which is understandable given the complexities of the issue and the amount of spare time working Australians have available to consider the issue. If you are like many, by the time you get home from work and get in front of a newspaper, the net or the telly (assuming the kids or paper work haven’t gobbled up what’s left of your time), you are pretty worn out and a long-winded discussion is going to tire you out.

The Libs have been great at exploiting this. With this kind of environment for voters, it understandably takes time for any disinformation the Government have spun their way to be analysed and exposed as false. The truth of children overboard took time to filter through so that when the truth was out, the election was over. Scrutiny of the role of DFAT in the AWB scandal was so protracted that by the time DFAT’s role was beginning to surface, people had switched off.

The economy is at least as complex as any of these examples of postponed  and protracted public debate.

So I’ll try my best to be concise with your time in mind. Please do follow the links if your curiosity is aroused, I think you will find the linked-to articles all to be valuable perspectives.

Peter Martin, Economics Editor of the Canberra Times, comments on the economic bombshell that the next Government will have to diffuse in ‘Congratulations on winning, here’s the bad news’;

“Yesterday’s Reserve Bank statement on monetary policy, in which Ken Henry was in some way involved through his membership of the Reserve Bank, provides a clue as to what is likely to happen on or just after Sunday November 25.

The incoming government will quite likely be told that far from “going for growth” as John Howard had been talking of doing (in an eerie reprise of his government’s 1983 slogan “we’re not waiting for the world”) what is urgently needed is something to slow down an economy accelerating dangerously fast.”

(Peter Martin, 2007)

Note that he doesn’t tie this to who wins the election? This is a serious potential problem and it won’t go away based on who wins the election. Just like interest rate rises didn’t go away just because people voted (overwhelmingly) for the Liberal party at the last Federal Election.

Why is that do you think? Ask Rory Robertson of Macquarie Bank.

“With few macro-economic policy levers to pull in Canberra these days, any modern treasurer’s job often resembles Head of Government Marketing – Economic. That is, it’s at least as much about absorbing incoming economic news here and abroad and providing upbeat economic commentary for public consumption, as it is about making macro-economic policy…”

(Sydney Morning Herald, 2007)

Or in other words, if either get in, then they are going to have about as much power to steer the economy as each other: very little! When Costello and Howard talk about their economic prowess, they may as well be talking about the Easter Bunny or Father Christmas. Imaginary!

But this kind of truth takes time to come out, as was the case with interest rates and the last election. The last election that somewhat ticked off the Reserve Bank (who are the lot that actually set interest rates). Just ask “The Cane-toad” from Canberra.

“…we were told simply that the government could be trusted to keep interest rates low. Not just “low”, but at “record lows”.

In fact, by suggesting it controlled interest rates back then, the government got up the nose of the Reserve Bank. The bank was so annoyed that it considered speaking out, but in the end decided against it.”

(Laurie Oakes, 2007)

And see what Laurie has to say about Howard and Costello’s dissembling about the current US sub-prime crisis and inflation rates.

“The government has argued, for example, that the sub-prime crisis in the US and other international developments could threaten Australia’s growth. There have been dire warnings of “turbulence” ahead.

But the Reserve Bank says the world economy is expected to continue to grow at an above average pace. And it shoots down the claim made by Howard and Costello when CPI figures came out on October 24 that those figures were “bang in the middle of the target range” within which inflation is supposed to be kept. The Bank is concerned that by the March quarter next year both the headline figure and the crucial measure of “underlying” inflation will be above three percent — the upper limit of the bank’s target band.”

(Laurie Oakes, 2007)

Now either Howard and Costello are fibbing about this, or they believe what they say and are just plain inept. The projected impact of the sub-prime crisis and projected inflation has been all over the news. Not the mistake of a “strong economic team”, but perhaps the mark of deceptive spin-doctoring. Or perhaps both.

If little that Howard and Costello do is actually driving the economy, then what could have possibly set us on this course of growth we have had?

“Steering the economy through a boom fuelled largely by China’s demand for Australia’s minerals has served Mr Howard well up to now.”

(The Economist, 2007)

A demand that is overstimulating the Australian economy I might add. We aren’t in danger of unemployment any time soon, irrespective of whoever gets in. Despite more categorically false claims by John Howard that he is somehow magically the “candidate for employment”, whereas Rudd can’t keep unemployment down. Worry about keeping inflation down!

But back to what’s really driving the economy.

If you knew in advance the date and time of an eclipse, and went before a people who had little knowledge of how an eclipse works or when it would occur, you could pretend to be able to summon it. Bugs Bunny did it once in a cartoon (and so did Monkey). John Howard is doing the same thing in taking advantage of the Australian people, except it’s not an eclipse, it’s growth stimulated by demand for primary resources driven by China.

Sadly, unlike Bugs Bunny and the eclipse, Howard’s stage show is not a cartoon. Real families, real singles, real lives with real mortgages and real bills are the victims in this dupe. Is it really that hard to accept that Howard could just walk on past people’s suffering in lieu of his own political opportunity? You be the judge of that.

But it’s not just the resources boom that Howard and Costello are riding the wave of either. Oh no, oh no. Consider The Economist again;

“The country has had 16 years of continuous growth, the past 11 of them under John Howard’s conservative coalition. In that period, the economy has regularly grown faster than other industrialised countries (see chart). Thanks to reforms inherited from its Labor predecessor, its own prudent fiscal management and a revenue boom from China’s demand for Australia’s minerals, the government is blessed with an enormous fiscal surplus, low inflation, unemployment at a 33-year low and a reputation for competent economic management.”

(The Economist, 2007)

The fiscal management and fiscal surplus go hand in hand of course. Starve the states of funding (and despite the “GST Windfall”, they have indeed starved the states under a kind of un-cooperative nationalism) and of course you’ll get a budget surplus (while the states will languish in debt, a debt conveniently the Federal Government can then blame on them). Importantly though, you can see in The Economist’s article the factors that drove everything bar the surplus have had diddly to do with the current Government’s “economic management”.

There is more. Take for example;

“Australian Labor Prime Minister Bob Hawke in the 1980s, confronted with an economy held in check by competition-stifling regulation, embarked on a series of significant but painful reforms especially in labour markets…”

and…

“The economic revival that began in 1991 persevered through 2006 without recession, increasing real per capita income by more than 40 per cent…”

(‘The Age of Turbulence: Adventures in a New World’, 2007)

That’s from the autobiography of conservative economist Alan Greenspan, first appointed under the conservative Reagan Administration pointing to where Australia’s current (relative) prosperity began.

For those wanting a little more context, the reforms of the day that Greenspan alludes to were reforms like monetary deregulation, enterprise bargaining (and “The Accord”) and the deals done under the Uruguay round of the then GATT. All Labor policies, reforms and multilateral deals I might add. You can thank Labor for the Cairns Group who in the day took our interests to the table far more robustly than our current Government ever has.

The Libs have always been peripheral to all of this. Despite Liberal IR reforms, enterprise bargaining still to this day covers most employment contracts, monetary reform since the Keating Government has been peripheral and many of the agreements put forward by the Uruguay round of GATT are still in effect to this day (through the World Trade Organization) and were signed and done deals before the Howard Government ever came to power (the more recent Doha round has been relatively quiet as far as Australian involvement is concerned).

It is doubly dishonest to call the current Federal Government strong economic managers. Firstly, the strength of the economy is not because of their management and secondly, “economic managers” grossly overstates their roll in driving the Australian economy. They are not strong economic managers, they are the guys and gals who just happened to be around when the economy got stronger, like Bugs Bunny and the eclipse.

~ Bruce

Disclosure: I am a member of the Australian Labor Party, however, I encourage you to be sceptical of similar claims made by Labor during this election. No part of this article has been dictated or suggested to me by the party.

Acknowledgement: Ninglun and Dave Bath for pointing me in the direction of some pertinent articles (and quotes). Oh, and to “Dave from Albury” for the link to the Howard pedestrian pinball incident