I’m doing a fortnightly column for the Age and the Sydney Morning Herald and here is the first column. Of course the thing that’s missing from the column is how I think they should have handled fiscal policy - which would have involved not just more straightforward and confidently assertive communications from them but would also have introduced some independent scrutiny of fiscal policy. Anyway, in writing it I realised how much I enjoy this genre. Like a blog post, but I often slave and sweat over each paragraph just to get the ideas across as briefly as possible, and to make it as much of a pleasure to read as one can.
EVEN as the contrast between left and right fades in mainstream politics, politicians continue ideological warfare like lions eat red meat. But somehow left-leaning politicians have become vegetarians. And they’re being eaten alive by the carnivores of the species.
Deep in the psyche of the electorate, the right is dad and the left is mum. Seriously! The electorate instinctively feels that the right is better with money while the left is better at ”caring” things such as health and education. The left’s desperation to avoid the right’s stereotype of them as feckless spendthrifts sees them continually hamstrung in articulating their case. Seeking to appease our economic anxieties they buy into the right’s way of framing the issues. In the name of managing the news cycle they give up more and more political and ideological ground.
Thus, for instance, to allay electoral fears about rising debt, US President Barack Obama suggested that, since American families and businesses were tightening their belts, the government should do the same. This is nonsense on stilts. By the very logic of his stimulus (and Bush’s cash handouts before him), the whole point of deficit spending was to reverse or counterbalance a temporary lack of private spending. As Paul Krugman argues, one can forgive Obama for compromising on the policy, but not on the truth; not, that is, for casually adopting his opponents’ framing of the issues that gainsaid the whole point of the stimulus in the first place.
Australia’s economic circumstances are different. Partly because our stimulus worked so well and also because of the surging resource sector, our central bank hasn’t needed to cut its cash rate to near zero. So it hasn’t run out of conventional monetary ammunition like the US Fed. So unwinding our fiscal stimulus makes sense.
Yet our left-leaning politicians can’t take credit for their greatest achievement because they’re forever thrusting their little vegetarian heads into the lion’s jaws of their opponents’ framing of the issues.
Recall how initially the government couldn’t even bring itself to mention the word ”deficit”? The real damage wasn’t how silly this made it look but how in being so defensive it hamstrung its explanation of what it was doing and why.
And when the opposition and the Murdoch press mounted a campaign against the wastefulness of the inevitable snafus in stimulus projects, it needed to stand and fight: not just because it had to defend its greatest achievement, but also because this was its issue. It should have said, ”Yes, the necessary haste meant there’d be some mistakes in more than 20,000 projects, but they were minimal, especially compared with keeping more than 100,000 people employed. That’s not just good for them. It’s good for the budget. They’re off the dole and paying tax so we got thousands of school halls for a song. Come to one near you to see what we’ve built together and hear us debate the opposition who criticised us for building it.”
And as some opposition politicians continue to laugh to themselves and journalists, the government was so consumed by its economic inferiority complex that it was suckered into foolish bravado. On her first day in office, Prime Minister Julia Gillard turned a budget forecast into an ironclad promise to return to surplus by 2012-13, immediately rendering her government a hostage to fortune.
The less you stand and fight, the more ground you lose. And the mindset in which one makes progressively riskier and more desperate assertions of one’s own economic bona fides by promising a surplus come what may is one in which the deficits funding the fiscal stimulus become something shameful, rather than the government’s crowning achievement.
ALP state governments followed a similar path of populist fiscal rectitude – to their doom. Clutching their AAA ratings, ALP governments mortgaged their economic future and their cities’ amenity by starving them of infrastructure investment. Ask former premiers Keneally, Brumby, and Bligh how those AAA ratings turned out.
And so to the budget. It really brought home the bacon. ”The deficit years of the global recession are behind us. The surplus years are here.” Makes you wonder why we ever ran deficits. And what happens if there’s another GFC?
In fact, the very night before the budget, Australians were being polled on just that. Just 25 per cent said they’d trust the ALP if there were another GFC, down from 31 per cent just in August. For the government that could reasonably lay claim to being the world champion at steering its people through the last GFC, how extraordinary, how sad that it’s come to this.
Postscript: the podcast of the column - on James McLoghlin last Sunday night.