Media managing all the way to oblivion

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 I 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 framing of 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.

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67 Responses to Media managing all the way to oblivion

  1. Alan says:

    Umm, the Rudd government steered Australia through the last GFC. The Gillard government was not then in office and its leader appears to have opposed the GFC response, at least initially. I suspect it is not framing so much as the posture, forced by that leader’s own folly, of having to to ignore the GFC achievement. Gillard has made herself the Basil Faulty of Australian politics, condemned never to mention the GFC.

  2. JB Cairns says:

    Nicholas ,

    I suspect it has a lot to do with those political geniuses from NSW.

    Another is the quality of the staff.

    It isn’t hard to combat errors by the Oppostion or the OZ.

    Take gross debt for example. compare Kouka’s article with what Swan has said.

    Swan’s record as Treasurer makes him the best we have seen but as a poltician he is hopless as is Gillard

  3. Pedro says:

    I’ll barrack for the away team. I reckon people are wary of ALP economic management because the party has a bit of form on that score. I’m sure plenty of people think that the “exemplary” fiscal stimulus wasted a lot of money, and not a few economists among them. Plus, generally people don’t trust sleazy liars. The party that sits in parliament trying to sweep craig thompson under a rug sure counts as sleazy, debauched even.

  4. kingsley says:

    “They’re off the dole and paying tax so we got thousands of school halls for a song. ”

    Why then was it necessary for such a hideous amount of debt to be booked?

  5. JB Cairns says:

    Kouka is correct. We have almost policy perfection at present. Unemployment below 5%, Cash rate 3.75% and falling, fiscal consolidation successful, inflation at levels we haven’t seen.

    That the government is in dire straits must be put down to Swan’s political inadequacies.
    Pedro’s wasts is a generalisation. I remember some ignoramus attempting to show how the BER was way outside quotes from the private secotr EXCEPT the BER task force showed average costs was BELOW those quotes.

    Critics like Pedro are like the 1950s communists. Evidence doesn’t matter. It is all about ideology.

  6. Julie Thomas says:

    I’m taking you seriously, Nick. I like the idea of bringing back the family as the ‘natural’ foundation for a just society. I think we have lost the essential idea the family is the real basis for an economic system. How could conservatives back away from this knowledge and allow the liberals to introduce an economic system that only acknowledges ‘economic man’ as an individual? Not that I know anything about economics.

    But it seems to me that economists are missing something important in not taking into account the fact that there is no society, or individuals, if women stop having children, as it seems we are doing in all the Westernised countries.
    Surely the caring state equals a nanny state? They don’t say it’s a mummy state; they call it a nanny state and the interesting thing is that TA – but maybe not all of the opposition? – seems to be in favour of nannies.

    So is a nanny the same as a mum? Or are they supposed to take on characteristics of both a male parent and a female parent?

    And another thing, wouldn’t it be a great idea to using yin and yang, to represent the male/female dichotomy, as Haidt does for the left/right dichotomy.

  7. Pedro says:

    Homer, those aren’t policies, those are states. When JH was in power a lot of credit was given to the prior policies, and rightly, now that it’s R/G policy works real fast and the pre-existing state is not relevant?

    Dan, you really think that all economists are in favour of fiscal stimulus.? Your reading is that limited?

    • Alan says:

      Dan, you really think that all economists are in favour of fiscal stimulus.? Your reading is that limited?

      Pedro, we are still waiting for you to name some of those economists you keep insisting support your case. For the record I do not claim that ‘all economists are in favour of fiscal stimulation’.

    • Patrick says:

      I too had that thought: ‘didn’t all Howard’s economic good luck result from the 1980’s labour government anyway?’

      Mutatis mutandis?

      Also, I think a lot of people agree with Jac Nasser and think that the current ALP is basically missing the boat, and unfortunately us with them. To pick up one of Nasser’s themes, Howard introduced massive tax changes with far less basic fucking around than the ALP has managed in each of their few years thus far, for example. As for the other, I can’t believe there is anyone in the this country who doesn’t think our union system is broken and that the ALP is mainly to blame.

      I recall commenting a couple of years ago that from the day Rudd was elected unions were on the front page of the AFR every day. This has basically continued ever since. Now maybe it is just the AFR trying to out-do the SMAge’s pathetic ideological ‘agenda-setting’, but since the average IQ at the Fin seems to be about twice that at the SMAge I personally doubt it. It also isn’t logical why they wouldn’t have done it under Howard when they might even have been listened to.

      • Alan says:

        The union governance provisions are essentially those enacted by the Howard government and the Thomson allegations date from the time when a series of Coalition ministers, including one Tony Abbot, were responsible for these matters. What’s the mechanism for the ALP being mainly to blame?

      • Patrick says:

        Alan, I’m not talking about union governance, and I don’t see how you thought I was – although I guess union misgovernance has become so friggen obvious that it is the political issue du jour. I thought everyone knew that unions were insider shops ran for the benefit of the insiders to the active or passive detriment of nearly everyone else so I’m less excited about that.

        I was talking about the industrial action side of things.

      • Alan says:

        Gosh, Jac Nasser supports the Coalition. I cannot remember when I read anything that surprised me less. What is your evidence for the proposition that industrial activity is significantly worse than in 2007?

    • Dan says:

      Nope, most definitely not. I imagine that Eugene Fama and Robert Lucas probably would have been against fiscal stimulus. But they were wrong on so much else, then with friends like those, you won’t need…

      So please, go right ahead and answer the question.

  8. JB Cairns says:

    Sorry Pedro I don’t get what states are nor R/G?

  9. JB Cairns says:

    Warwick McKIbbin didn’t but his reason was we didn’t need it and it would lead to inflation.

    He hot that wrong big-time
    Tony Makin didn’t. He attempted say say net exports helped. what he didn’t say was net exports didn’t rise because of exports rinsing alah Iceland but in our case imports fell much more than exports.That in itself doesn’t assist growth.
    He also attempted to say monetary policy did it all except Banks found funding very hard when credit markets froze and they lent money to one main sector. first home buyers why.
    He treated us to the Mundell-Fleming hypothesis on why it would work except he hadn’t read its assumptions. Luckily ken Henry and Glen Stevens had.

  10. derrida derider says:

    What JB said – Rudd in particular consistently chose lousy advisors (it didn’t help that most advisors, good or bad, couldn’t work with him for long – he really was the boss from hell).

    I’ve always thought both Costello and Swan were quite slow-witted men made to look sharp by their excellent department. And I say that as someone who has a long history of bureaucratic stoushes with that department.

  11. JB Cairns says:

    why are we not seeing this in unemployment or wage growth etc.

    All I hear is a lot of assertions but NO evidence.

    • Patrick says:

      What’s wrong with the ALP in a nutshell (and this whole post actually). Sure things still look ok now. But how much does that actually have to do with the present government and for how long will that last?

  12. JB Cairns says:

    Patrick is a classic old style communist.

    Facts never matter. ideology rules.

    Why is unemployment so low. err something called a stimulus. why is inflation been falling to its present record lows?

    Stimulus wonderfully managed where it added to GDP at the right time and detracted from GDP also at the right time.
    Labour market hasn’t changed so no wage explosion.

    fiscal policy tight so with the mining boom being not as strong as thought interest rates can fall.

    and we are about to get back to trend growth after the GFC.

    The only things that could materially have a negative effect on the economy are external matters.

  13. Nicholas Gruen says:

    Pedro, “people don’t trust sleazy liars”. Yes I agree with you. I’m one of the few people who was sympathetic to Clinton, thought he did a reasonable job – an adult compared to the kids on the other side, and yet that he should have resigned for lying barefaced to the public on TV. And accepting Thompson’s vote is looking worse and worse.

    I presume you had similar sentiments about John Howard telling us that refugees were chucking their kids off the boat for a photo op?

    • Pedro says:

      I did have reservations about the kids overboard, I don’t like lying. But I accept there will always be plenty lying in life and the real question is how bad the lying gets. I’m sure Howard and Reith gave an instruction to avoid any correction to the intial report. I think the current Govt clear strategy of doing anything possible to avoid the facts about Thompson is still much worse.

      I don’t know if you could be confident of the Libs doing the right thing, but I sure believe that one wrong is not corrected by a potential wrong of the same nature. It’s our parliament not theirs and I’d rather the grubs were only in the lawn out front.

  14. Nicholas Gruen says:


    I think your comment might be intended for another thread, but in any event, the idea of making the family some natural unit for a polity sounds good, but it seems to me to be a kind of category mistake. Families are naturally communistic. They are the epicentre of reciprocity and human beings are hardwired for reciprocity. The paradigm problem of a modern state – it seems to me – is that this kind of intimate reciprocity can’t exist. People rapidly take things for granted and the state (or any large organisation for that matter) must operate mostly through objective rules. And such rules are often unfair – which leads to disaffection and/or inefficiency – or we complicate them which leads to red tape and all the rest.

    Markets solve these kinds of problems in a rough and ready way – but have the advantage of a high degree of efficiency and quite a bit of fairness (if you ignore the original distribution of wealth which is far from fair – though capitalist democracies seem to have done better on this than most other countries). In any event, governments work by the same kinds of procedures – which must operate at huge scale if they’re to work at all.

    • Julie Thomas says:

      I think i got the right thread Nicholas, but maybe I’m in the wrong universe; lol. I can see, re-reading your post, that I focused on an aspect of it that wasn’t the important thing, and my comment was so disorganised that it appeared to be related to the comment I’d made previously, on the other thread. Sorry. ?
      But, you did say what I was trying to say, that the idea of the family as the prime or fundamental reciprocal unit is incompatible with government, because the state has to use objective rules for distribution. If that’s what you said, something close to that maybe?, then I totally agree and I’m complaining about that.
      I think it was John Ralston Saul who said, in “Voltaires Bastards”, that neither capitalism nor socialism are real ideologies, they are just methods of working out ownership and income issues. My old dad also said that neither of them works because of human nature. Rawls – not sure what you think about this author but I found interesting things in this book – didn’t mention specifically that a proper ideology – does he mean a new ‘grand narrative’ for the whole species perhaps (?) – should take into account what we now know about human nature. But that’s obvious surely?
      Markets are great; the angel side of human nature thrives when we swap and share, both ideas and possessions. It is the assumptions of capitalism that ‘force’ us to emphasise our devil and create markets that benefit cheaters and psychopaths. You probably know this argument better than I do though?
      If we humans are wired to be ‘fair’; to feel better when we do good for other humans, how can we continue to base our society on a system that ignores this?
      I think I know the problem though, you live in the real world and I live in a sheltered rural area, where I can leave my keys in the car while I go into a shop so I can dream of going back to when most of Australia was like that. Sorry lol.

      • Nicholas Gruen says:

        Thanks Julie,

        What’s wrong with the idea that we’re a tragic species? (Ie one that cycles between frameworks that are not and cannot be strictly compatible.) Why can’t we be nice to each other? Why indeed. Well we are nice to each other – and nasty to each other – at the same time – like other species.

        Why the hankering for some ideology that will be perfect. Well I know why the hankering, but why assume one is possible? It’s hardly surprising that things only barely hang together if you see us as the product of evolution. We ‘took off’ in civilisations long before we got out of beta on the African Savannah. Why do most of us have bad backs? Because evolution still had some way to run with us guys. And that’s before you leave the plains and come to live in the city! But we thought better of hanging round on the African Savannah for another few million years (and had we done that we still wouldn’t be evolved to live in civilisations – we’d be even more evolved to live on the Savannah).

        I don’t know about John Ralston Saul. I checked out Voltaire’s Bastards in a bookshop and it struck me as a little too grand for my tiny mind. I suspected glibness but haven’t read enough of him to feel confident of that judgement.

  15. Nicholas Gruen says:

    Patrick, I’m ambivalent about unions, but are you saying Australia has particularly bad ones? I would have thought they mainly do what unions do, though there’s some corruption there pretty obviously. Is this different to unions in other countries (or business for that matter?)

  16. Alphonse says:

    A government on the skids in the polls has a very liberating opportunity. It can stop over-thinking its politics and just shamlelessly do good policy. Not only is that an end in itself if the near-certain loss of office ensues, but it is the only way to possibly reverse its political fortunes.

    It’s time for Labor, Greens and Indies to future-proof us before Tony happens.

  17. JB Cairns says:

    err if they were supporting bad policy then how would you get inflation, unemployment, the budget, cash rates etc where they are.

    • Alphonse says:

      Surely you’re not giving them 100%, Jim. As Nick notes, the balanced budget pissing contest was a guaranteed loser even if near-balance was achieved, taking the smoke and mirrors (which represented better economic policy than true balance) into account.

      Anyway, the take away from Nick’s post is that good policy is better done shamelessly than shamefully.

  18. Pedro says:

    Homer, when I wrote “states” I meant that as in status. The current economic indicators are facts not policies. There is a lot of ruin in a nation. But right now we have a general economy that seems a bit weak and shitty and one booming part.

    To continue something else I said, here’s a great quote:
    “People in my camp have repeated until we’re blue in the face that the case for fiscal expansion is very specific to circumstance — it’s desirable when you’re in a liquidity trap, and only when you’re in a liquidity trap.”

    So Homer, just when were we in a liquidity trap? According to that commentator our fiscal stimulus was not desirable at all.
    Here’s a bit more interesting commentary

    NG, here’s a story for your cynicism collection.

    • Nicholas Gruen says:

      Thanks Pedro, but alas one swallow doesn’t make a summer. That is, I expect dodgy policy from all pollies (and have almost never been disappointed). But that’s why it’s so easy to end up in ideological trenches lobbing grenades. I think this just comes with the territory. That’s why I try to judge things more within their context.

      But of course that means it requires greater goodwill for people who have different perspectives to agree. (Well actually not – because they won’t really ever agree, but it certainly makes one’s judgements look more ‘subjective’. One is always involved in interpretation – and our natural instincts are to call on the interior lawyer to interpret the way we want.) Anyway, I generally ignore what Oppositions do because the media (and the attitudes of the citizenry) mean that they have to carry on like pork chops to be noticed at all.

      My feeling about the Howard Government was that it managed to achieve a couple of things – GST and Workchoices though Workchoices was a nasty piece of class war when it could have been done properly if it had been done more honestly – for instance with a wage/tax tradeoff. There was also gun control – so good on him. Against that we got the culture wars. Even there, I’m not that unsympathetic to the ‘rights’ side of the culture wars – God knows left liberalism hasn’t done too well on social issues – but it was done with such lack of generosity, and xenophobia that it was horrible.

      However for some reason I find it hard to get too worked up when there are any number of spokespeople getting worked up on my behalf. All the things I’ve mentioned above became clichés. The thing that finally got me angry about the Howard Government was the fecklessness of what it did, year after year as the revenue rolled in.

  19. JB Cairns says:


    the RBA did their own version of QE. Why?
    Banks could get funding O/S with a Government guarantee so I would add monetary policy being impaired to a liquidity trap.

    nothing undesirable came from it so it must have been successful!!

    yes they are facts but you cannot get them without policy


    They could have adopted the NZ way all 96 pages of it ( which is what Reith wanted to do) but all Howard wanted to do was destroy Unions without realising they were doing that all by themselves.
    NZ’s NAIRU is lower than ours.
    workchoices actually did bugger-all although most people could see how unfair it was.

    • Nicholas Gruen says:

      The argument for a fiscal policy response was that fiscal policy provides speed and calibration. I seem to recall someone talking about “long and variable lags” of monetary policy. I see my friend Henry Ergas saying that the UK and New Zealand have stronger fiscal contractions than us – bully for them. They’ve handled it all so well up to here . . .

      • Pedro says:

        I know we are on the merry-go-round, but the point I am making is that some really serious people have a counter view and they can’t be derided as right-wing shills. I’ve also made the following points at times in the past:

        1 when spiraling down a helicopter drop makes sense to me;

        2 the argument for pump-priming gets really thin when the CB is raising rates and yet that is what happened here. I think this is a pretty simple point, if the keynesian remedy is the multiplier then it must be pretty much zero when rates are rising.

        There is a lot of talk on the left about the perils of austerity, but any given country either does or does not have much latent borrowing capacity. If you think about Spain, things can turn around really quickly if the big drivers in your economy come unstuck and the debt starts to climb really quickly. If you look past Krugman’s criticism of austerity for the PIIGS you will not find much in the way of practical alternatives. Mainly that the germans should give them money or that the ECB should print euros on kleenex if necessary.

      • JC says:


        The ECB has been a complete abomination in their conduct of monetary policy. They have been an absolute disgrace and in fact the entire thing ought to be dismantled and started again as a lesson to incompetence. They don’t understand what they are doing.

        Don’t get me started. In 2008 they raised rates as they believed they had an inflation problem and the very next month or shortly thereafter they were forced to cut and signal material easing.

        The entire continent is falling off a cliff and last month Draghi had the audacity to babble on about maintaining stable prices in view that the EU wide CPI was at the top of the band. He along with the rest of the board is freaking nuts. I thought he would be better than Trichet, but I was wrong. He should be talking about easing policy and doing it quickly but he doesn’t thereby losing control of the situation.

        The ECB and the ECB alone is the reason why this crisis has been festering along for around 3 years now. Rather than giving Germany the finger they are their poodles.

    • Pedro says:

      Homer, exactly what are you trying to claim? I cite a (imo)nobel prize winner saying that fiscal stimulus is only for a liquidity trap and you retort that it was different here because the RBA was doing a form of QE by guaranteeing reserves! How does that indicate a liquidity trap, or are you just making stuff up again? This should help a bit
      PS, I wonder who put the Austrian stuff at the end.

  20. JB Cairns says:


    I agree with the statement but added a rider when monetary policy is impaired as it was in 2008/9 as I previously explained.
    Liquidity trap merely means monetary policy is impotent. Ours was very close to that because of bank funding problems. Lack of funds means less lending and only to safe areas.
    for QE down under read part of this.
    guess why they were indulging in QE at all?
    Henry Ergas, the latter day Bob Ansett ,was being highly misleading to almost fibbing.
    the IMF show us having the SAME fiscal consolidation but we had a bigger stimulus and of course NO recession.

  21. JB Cairns says:


    People simply forget but Glenn Stevens mentioned in the 2009 RBA Annual Report that for a time people were taking money out of banks here and the RBA had to prop up the system.
    Yet we didn’t have a recession. counties like Canada and NZ did have recessions and unemployment rose abruptly.
    We didn’t because ……..

  22. Pedro says:

    Homer, I’ll write PK and tell him he doesn’t know what a liquidity trap is. What address should I give him for the thank you note?

  23. JB Cairns says:


    Not for the first time you are not reading what I am saying.I am in agreement with him.
    A liquidity trap is when monetary policy is not working properly.

    If the RBA cuts rates but banks cannot boost their lending because of funding pressures it ain’t working properly.


    • Pedro says:

      No you aren’t. Krugman says a liquidity trap is when you are at the zero bound. He says that incessantly and that away from the zero bound, monetary policy is the proper route.

      • Tel says:

        Pedro, I know what Krugman says, but in Australia there seems to be a low threshold where the RBA rate changes are largely ignored by the major banks. At that point it doesn’t make much difference how the official rate changes.

        Probably there exists a similar limit in the USA. At the moment the US Treasury can borrow at what, 2% or there abouts? But normal people can’t borrow at that, not anywhere close. No one has a mortgage at 2%, no business has an overdraft at 2%, credit cards are more like 20%. Sure, risk explains at least some of the gap, but the US Treasury is not exactly risk free, anything could happen. Mostly the difference is that the Fed is willing to buy 60% of Treasury debt, but unwilling to buy 60% of anyone else’s debt, thus creating a unique and privileged position.

        Once the Treasury reality diverges sufficiently from the Main Street reality, there is no more monetary policy. It’s string pushing territory (for the record, I prefer the older moniker which is “pushing on a wet noodle” but that’s just a personal thing).

      • JC says:

        Pedro, I know what Krugman says, but in Australia there seems to be a low threshold where the RBA rate changes are largely ignored by the major banks. At that point it doesn’t make much difference how the official rate changes.

        I don’t think that’s historically true. These last couple of years have been unique that bank funding from overseas sources has gotten to be expensive. Additionally RBA practices an incremental monetary policy. If it wanted to to make a big difference it ought to have made bigger changes and faster too.

        Probably there exists a similar limit in the USA. At the moment the US Treasury can borrow at what, 2% or there abouts? But normal people can’t borrow at that, not anywhere close. No one has a mortgage at 2%, no business has an overdraft at 2%, credit cards are more like 20%.

        Well actually the biggest problem facing US banks is that their net interest margin has been reducing while they can’t borrow below zero, which therefore means spreads have been coming in.

        Sure, risk explains at least some of the gap, but the US Treasury is not exactly risk free, anything could happen. Mostly the difference is that the Fed is willing to buy 60% of Treasury debt, but unwilling to buy 60% of anyone else’s debt, thus creating a unique and privileged position.

        The Fed has also bought other instruments other than notes and treasuries. It has a big holding in mortgage backed secs and continues to replace them as they mature.

        Once the Treasury reality diverges sufficiently from the Main Street reality, there is no more monetary policy. It’s string pushing territory (for the record, I prefer the older moniker which is “pushing on a wet noodle” but that’s just a personal thing).

        There are no limitations to what the Fed could do. Bernanke has said this many times that the Fed has considerable tools available even at ZIRP. It can choose to use them or unwilling to do so, however the pushing on a strong theory in a fiat regime is pure baloney.

      • Pedro says:

        I recall that the RBA said at the time they wanted to keep their powder dry, and I’m pretty sure NG expressed a common view about the stupidity of that, but clearly the RBA didn’t think they’d hit the lower bound. Once again, with feeling, when the shovel ready projects finally started to roll out after the recession, the RBA started lifting.

      • Pedro says:

        JC, don’t forget interest on reserves.

  24. JC says:


    So a central bank is unable to influence demand through the purchase and sale of financial assets? Interesting.

    Write to Uncle Ben and tell him of your amazing finding, then write a paper on it and get yourself a Nobel Prize.

  25. desipis says:

    So a central bank is unable to influence demand through the purchase and sale of financial assets? Interesting.

    That wasn’t what was said. Supply and demand of financial assets is not equivalent to liquidity in the wider economy.

  26. JC says:

    That wasn’t what was said.

    That’s what he certainly suggested.

    Supply and demand of financial assets is not equivalent to liquidity in the wider economy.

    It has nothing directly to do with supply and demand of financial assets ie workings of the financial market. It has to do with the central bank being able to impact overall demand through the purchase or sale of financial assets.

    If you like Homer seem to believe that a central bank under a fiat regime is unable to influence demand in the economy then come out and say so.

    (You two guys don’t understand there is a difference between credit and money. They aren’t the same thing).

  27. Corin says:

    I broadly agree having worked with the Rudd office for 18 months.
    I think the GFC had potential to galvanise – especially at the start of the Rudd term. I think Rudd missed a trick of incumbency here – you only get 18 months of ‘untrammelled authority’. You have to make it count by getting a broad coalition of support and then you get a bit longer. Interestingly Howard made the same mistake and it was only the 1998 election and then Tampa that gave him momentum/authority for that wider public standing and leadership after the normal period of honeymoon …

    The main point of the story is well addressed. Labor has won the ‘battles’ and lost the war … it keeps making strategic decisions and then fighting the war based on publicity and media management … the main problem has been that every day they likely win the news cycle only to find that by doing so, they aren’t performing at their best on the big issues. They have tried to create a new agenda but haven’t had the confidence to prosecute it every day (even if that sometimes means losing the media cycle for a period to other issues etc). They also haven’t consietntly prosecuted the same agenda – ETS and stimulus and as you say that has been catastrophic for their standing.

    I was pro-Rudd removal in 2010, when it happened, but with hindsight that also sunk the connection of the party with any potential narrative of leadership through the GFC.

    • Alan says:

      Look I cannot remember the last time that Labor ‘won the 24 hour news cycle’. I accept they are focused on it but I cannot see any results. I really do not think anyone is listening any more. Strokes of genius like omitting the carbon price from the household assistance package are the beginning and end of this government’s political skills.

    • Pedro says:

      If legislating the carbon tax is winning a battle then I would call that fighting your way through to the middle of the ambush.

      • Alan says:


        I could not agree more. Both Gillard and Rudd have tended to think once the legislation is passed the game is over and you can move on. The reality is that legislation can and probably will be repealed if it does not enjoy popular support. Pushing the household assistance package without mentioning the carbon tax is both incredibly foolish and a mark of the extraordinary electoral weakness of this government.

      • Tel says:

        Howard made the same mistake with “Work Choices”. It’s hard to predict the future.

  28. Mike Pepperday says:

    “Families are naturally communistic.” Ah Nicholas, I think that is a huge misunderstanding. The next sentence is more like it: “They are the epicentre of reciprocity and human beings are hardwired for reciprocity.”

    Communism is not reciprocity. Communism – the left generally – expects human nature to be good and everyone to contribute without thought of return. To each according to his needs, from each according to his ability. The Good Samaritan’s act has nothing to do with reciprocity.

    Reciprocity is at the heart of the free market. Deal-making: you do this and I’ll do that – agreed? No – yes – no – okay, agreed. Explicit reciprocal exchange characterises and structures the entrepreneurial free market.

    The family as a network largely mirrors the network of the free market. Like valued contacts in the market, a family is hard to get into. You can enter it only through birth or by extensive negotiation. Like participation in the market, there are no barriers to exit. Compare this with communitarian structures which often require merely a sincere expression of good intentions to join and which, once joined, are sometimes extremely difficult to escape from.

    Communal allegiance generally requires individuals to distance themselves to some degree from their genetic family and in extreme cases even to cease all contact. The free market has no such requirement. On the contrary, the purpose of engaging in the market is to support the family. Thus societies that emphasise the market will be the ones which regard the family as sacred.

    Internally a family might be communistic or fascist or chaotic but as far as the rest of society is concerned, a family network is just like a tight market network.

    • Tel says:

      Very well said, however I guess that what Nick was trying to say was that if my son turns out to be a great achiever, then I’m proud of that achievement even when I get nothing back, because my son is halfway made of me. Thus, families are hard-wired for an automatic reciprocity that does not exist in normal trade relationships.

      Communism of course, is central planning, and that’s something else again.

    • Nicholas Gruen says:


      I could just as easily take exception to your description of the family as a ‘tight market network’ as you have taken to my use of the word ‘communistic’. I could point out the ways in which it’s not like a market. But your point in using the analogy is to stress the similarities. In each case I suspect we understand the point that’s originally being made.

      • Julie Thomas says:

        My idea is that it will be useful to see if there are ‘baseline’ type behaviours, that created the adaptive (or survival) advantages that the ‘ancestral families’ must have provided to the first humans. But knowing this information does not mean that we should go back and live like the ‘ancestral family’; it could, though, make it easier for people to adapt to the rapid changes that are happening.

        And if the President of the USA has okayed homosexual marriage, the variety of families that are possible to us now do not have to conform to the family that conservatives would like to think is the high point of human evolution.

        Maybe the family is wired for altruism as well as reciprocity’? Young children are wired to prefer ‘fair’ trades – I can find publications for this – but it’s not clear how the environment influences this preferences as the children develop and there appear to be some individual differences between the children with most but not all choosing an exchange in which both participants get an equal share.

        Perhaps when the environment violates our natural preference for equality and tells us that a trade should make a profit, rather than be a reciprocal exchange, as we grow up we will change our internal values.

  29. Julie Thomas says:

    oops I think I have replied to you Nicholas and I meant to post in the main thread; I’m easily confused :) and liked your earlier set-up with no confusing reply buttons.


  30. Julie Thomas says:

    oops I think I have replied to you Nicholas and I meant to post in the main thread; I’m easily confused :) and liked your earlier set-up with no confusing reply buttons.


  31. Pingback: A Christmas “I told you so” | Club Troppo

  32. Pingback: A Christmas “I told you so” | Club Troppo

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