Peter Costello is Shovel-Ready
Liberal backbencher and former Treasurer Peter Costello channels Rex Connor:
Yesterday he continued the attack on the Rudd Government’s cash handouts, saying the $20billion would have been far better spent on infrastructure.
“You could have drought-proofed Victoria for that…for $20 billion you could have built a channel from Northern Australia down to Victoria…”
posted on 19 May 2009 by skirchner in Economics, Politics
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The Myth of an Independent Treasury
My CIS colleague and former Treasury official Robert Carling has an op-ed on page 21 of today’s Australian (no link, but see text below the fold) noting that neither Treasury nor the Budget papers are independent of the federal government.
The claim that Treasury is an institution independent of government fundamentally misconstrues the relationship between the federal government and the Commonwealth public service. While it is not surprising to see politicians fail Economics 101, it is more surprising to see them also failing Political Science 101. The government now routinely hides behind Treasury and RBA independence and the federal opposition is increasingly accommodating this behaviour through their unwillingness to challenge official sector views.
While the RBA is more independent than Treasury, this independence is limited in scope. At its most basic, RBA independence means that it is free to set interest rates without the approval of the Treasurer, what is often called ‘operational independence.’ This independence in no sense precludes the government or opposition from taking a different view on monetary policy to the RBA or being publicly critical of central bank policy actions, statements and forecasts. The RBA has been made progressively more independent of government precisely in order to facilitate differences of opinion with government. Under the Reserve Bank Amendment (Enhanced Independence) Bill, it is almost impossible to remove the RBA Governor, so public criticism could hardly be viewed as a threat to the Governor’s position. By the same token, the RBA would not be compromising its independence by speaking out on issues relating to its statutory responsibilities, provided it does so in a non-partisan fashion.
Mistaken notions of Treasury and RBA independence are being used to suppress public debate over economic policy, not least by the current government. That the federal opposition and media are accommodating this behaviour on the part of the government can only undermine the robustness of public debate and democratic accountability.
continue reading
posted on 16 May 2009 by skirchner in Economics, Fiscal Policy, Media, Monetary Policy, Politics
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All Praise Lu Kewen Thought!
The over-stretched Department of Foreign Affairs and Trade makes the thought of the legendary Lu Kewen available to the benighted masses of G20 nations:
KEVIN Rudd believes in spreading the good word - particularly his own good words on the evils of greedy neo-liberals - and doesn’t mind using the Department of Foreign Affairs and Trade as a worldwide publishing agent.
The Prime Minister decided his 7700-word essay on the origins of the global financial crisis deserved a world audience before the G20 financial summit in London next month.
The essay, which argues for more global regulation of financial markets and says capitalism is “cannibalising itself”, is being distributed around the world through Australian embassies and high commissions…
Mr Rudd’s essay is now intended for world publication before the crisis meeting of the world’s top 20 economies in London on April 2.
posted on 18 March 2009 by skirchner in Economics, Politics
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Rudd in Wonderland II
Michael Stutchbury writes from Davos on that essay:
There’s so many straw men in there, it’s a fire hazard.
At the same time, the WSJ writes on ‘neo-socialism Down Under’:
he’s manufacturing a philosophy to justify his actions.
posted on 03 February 2009 by skirchner in Economics, Politics
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Rudd in Wonderland
David Burchell attempts to deconstruct Rudd’s bizarre work of political speculative fiction:
It’s hard to accept that the flesh and blood Kevin Rudd who lives in the Lodge really believes any of these things. While it’s true that governments around the world have been more inclined to expose national economies to international competition, and to facilitate the flow of capital across national borders, there’s no clear evidence of a general shrinkage of the size or role of governments over the past 30 years, regardless of the ideological presuppositions of specific administrations. The neo-liberal ghoul is just that, a ghoul. And the fantasy that sets states and markets on a path of mortal combat resembles the imaginations of those medieval mystics who saw Christ and the devil locked in struggle across this vale of tears.
This is where the several other authorial Rudds come in. One of them - we’ll call him Rudd 2 - is the dutiful policy technocrat, eager to reassure us about the practical measures necessary to stabilise world finance. But since few of these measures are disputed by orthodox economists, it’s not clear how they toll the death-knell of neo-liberalism. Rudd 3, in turn, is that familiar figure in ministers’ offices, the instinctual party loyalist who wants to spin the fable of neo-liberalism into a partisan account of Labor governments (good) and conservatives (bad). Yet this third Rudd seems equally discordant with the first, given that - as the Old Testament critics of economic rationalism have been instructing us tirelessly since the early 1990s - the Hawke-Keating governments were our neo-liberal pioneers, the unleashers of the locust plague, the vandals of our nation-building state.
What I have seen of Rudd’s essay reads almost like a cyber-punk novel, with the action set in a speculative ‘neo-liberal’ dystopia (Brutopia?), and where the social democratic hero (guess who?) saves the day.
posted on 02 February 2009 by skirchner in Economics, Politics
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‘Neo-Liberalism’ Triumphed in 1978. Who Knew?
Prime Minister Kevin Rudd has produced a 7,700 word essay on The Global Financial Crisis. Only the first 1,500 words are currently available on-line. Until I have seen the rest, I’ll refrain from commenting on the substance, such as there is. If any readers have a samizdat copy, please send it through.
However, if the first 1,500 hundred words are any guide, we can safely comment on the Prime Minister’s style. Kevin Rudd is notorious for the mind-numbing emptiness of his public utterances. Rudd’s most overused phrase is ‘for the future’, so it was no surprise that this made it into the first 1,500 words, along with such awful clichés as ‘throw the baby out with the bathwater.’
As with his ‘Between Hayek and Brezhnev’ speech to CIS in August last year, Rudd posits two straw men and then places himself in the reasonable centre. Rudd’s approach to argument is thus very similar to his approach to politics. His strategy is to minimise points of disagreement. But what works well as political strategy won’t fly as serious argument.
posted on 31 January 2009 by skirchner in Economics, Politics
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Wages Breakout versus Imagination Land
Once-were-inflation-warrior turned inflation capitulationist ‘Henry Thornton’ concedes:
if wages begin to surge, all bets will be off and the bank will need to hit the economy with additional rate rises until people demanding wage increases get the message.
If you like record-breaking growth rates in the labour price index, then you are probably going to love next week’s March quarter release.
Meanwhile, over in Imagination Land:
BRENDAN NELSON will today challenge Labor’s first budget a week before its release by claiming there was no need for spending cuts because Australia’s inflation crisis was “imaginary” and “a complete charade”.
posted on 06 May 2008 by skirchner in Economics, Financial Markets, Politics
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Interest Rates & Housing Affordability: Mike Rann’s Blame Shifting
SA Premier Mike Rann writes to RBA Governor Stevens asking him not to raise interest rates in order to ‘maintain housing affordability.’ As RBA Deputy Governor Ric Battellino noted in his recent presentation to the Senate Select Committee on Housing Affordability, mortgage interest rates in Australia are no higher now than in the mid-1990s, when housing affordability was at record highs. Instead, Battellino suggests another culprit in record low housing affordability:
the rise in house prices has been much faster than that in construction costs, so the implication is that most of the increase in house prices has been due to increases in the price of land.
That would be the responsibility of state governments.
If APM are to be believed, higher interest rates are improving housing affordability as we speak.
posted on 30 April 2008 by skirchner in Economics, Financial Markets, Politics
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Australia 2020 or 1930
Henry Ergas finds little new in the 2020 summit:
This reliance on government, which sets the tone for the summit outcomes, is hardly “new thinking”. Rather, it brings eerily to mind W. K. Hancock’s great work Australia, published more than 70 years ago, where he noted the tendency among Australians to “look upon the state as a vast public utility, whose duty it is to provide the greatest happiness to the greatest number”. Though “generally matter-of-fact people who distrust fine phrases and understand hard realities”, Australians are, he concluded, “in politics, incurable romantics” who, out of intellectual laziness and profligacy born of the country’s wealth, “constantly confuse ends and means (and are) reluctant to refuse favours, to count the cost, to discipline the policies which they have launched”.
History shows all too clearly where that path leads: not to the glorious future the summiteers have in mind, but to waste and inefficiency, disappointed hopes and dashed expectations. If that is the best we can come up with, the road ahead will be painful indeed.
posted on 22 April 2008 by skirchner in Economics, Politics
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Ideas So Big, they Fit on Post-It Notes
Big ideas from the 2020 Summit:
Other “big ideas” on tax, captured on Post-it notes included:
? Reduce the number of taxes;
? Eliminate payroll tax and stamp duty.
Like no one ever thought of that before! There has never been a shortage of ideas in relation to tax reform – just a shortage of governments willing to implement them.
At least Andrew Norton dissented from the final standing ovation.
posted on 21 April 2008 by skirchner in Economics, Politics
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Glenn vs Glenn
Alan Wood defends one Glenn against tabloid populism, while rejecting the claims of another Glenn who should know better:
I cannot recall a previous occasion where there has been such a scurrilous personal attack on the governor of the bank as the one on Glenn Stevens in Sydney’s The Daily Telegraph on Saturday, when he was labelled the most useless man in Australia for simply stating the facts about rising bank interest rates. This economically illiterate piece of populism is offensive but, fortunately, irrelevant in the broader debate on monetary policy…
However, what is disturbing is Glenn Milne’s report in his column on this page on Monday that Stevens “in the view of Canberra’s economic and governance elite is at a tipping point in personal, presentational and policy terms”. Milne also said there was a view at the most senior levels of the Rudd Government that Stevens needed to urgently improve his presentation, not least because he had spectacularly contradicted Treasurer Wayne Swan’s narrative that independent rate rises by Australia’s banks were not always justified….
According to Milne, Stevens has few friends in Canberra. If the view that the Rudd Government has lost confidence in the central bank governor became widespread, it could have dangerously destabilising effects on already unstable financial markets. Is it true? Having spoken to a few of Canberra’s “economic and governance elite”, I haven’t detected any loss of confidence in Stevens, with one government source describing his Friday remarks as spot-on.
Terry McCrann adds:
So the chairman of a group which had led one of those boom-time private equity - meaning, loaded with debt - buyouts of the Myer stores doesn’t like rising rates which cut consumer discretionary spending.
Now that’s a surprise. And an obvious lesson. We must immediately hand interest rate decisions to Bill Wavish.
McCrann is being ironic, but the fact is that we do allow retailers to sit on the RBA Board.
posted on 09 April 2008 by skirchner in Economics, Financial Markets, Politics
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Nelson, Swan and RBA Independence
Treasurer Wayne Swan, responding to opposition leader Brendan Nelson’s view that the RBA has gone too far in raising interest rates, says that:
The fact that Dr Nelson and the Liberals can’t decide whether they still support the independence of the Reserve Bank or not shows just how badly the Liberals have lost their way on the economy.
This is a common misunderstanding of what it means for the RBA to be independent of government. At its most basic, RBA independence means that it is free to set interest rates without the approval of the Treasurer. The RBA enjoys what is often called ‘operational independence.’
This is no sense precludes the government or opposition from taking a different view on monetary policy to the RBA or being publicly critical of central bank policy actions. The RBA has been made progressively more independent of government precisely in order to facilitate differences of opinion with government. Divided authority in relation to monetary and fiscal policy is a valuable institutional protection against macroeconomic policy mistakes. Under the Reserve Bank Amendment (Enhanced Independence) Bill, the RBA Governor will enjoy such a high level of statutory independence that public criticism could hardly be viewed as a threat to the Governor’s position.
By the same token, the RBA would not be compromising its independence by speaking out on issues relating to its statutory responsibilities, provided it does so in a non-partisan fashion. Former RBNZ Governor Don Brash would frequently lecture the New Zealand government on structural issues, because monetary policy is necessarily conditioned on structural factors over which the central bank has no direct control. Brash would frequently point out that if politicians want strong growth, together with low inflation and low interest rates, then various structural measures outside the scope of monetary policy could assist in this task. When he was Chairman of Federal Reserve, Alan Greenspan would also publicly canvass a wide-range of economic policy issues beyond the immediate scope of monetary policy.
In Australia, by contrast, mistaken notions of RBA independence are used to suppress public debate over economic policy.
posted on 08 April 2008 by skirchner in Economics, Financial Markets, Politics
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Glenn Milne’s Thinly Disguised Class Warfare
Glenn Milne joins the tabloid attack on Glenn Stevens, complaining that the RBA Governor is not phoney enough:
Central bankers might argue that they’re not meant to behave like politicians. But the reality of public life is that if you are the individual who is seen to have the power to decide whether people keep a roof over their heads, you must behave in an accountable fashion, or at least pretend to.
Stevens is not behaving in this way.
The whole point of having an independent central bank is to have economic policymakers who will tell it like it is and not give in to economic populism. Milne says that ‘Stevens now has few friends in Canberra.’ That is how it should be. A more adversarial relationship between the RBA and politicians would strengthen, not weaken, public accountability in the conduct of economic policy.
Then there is this bizarre and nonsensical bit of parochialism:
Stevens, with his Teutonic lustre and mid-Atlantic conference accent, comes from nowhere recognisable in the Australian suburban landscape…
Glenn Stevens can do no more about his appearance than Glenn Milne. Stevens actually looks and sounds more authentically Australian to me than Milne, but what of it? Milne is indulging in thinly disguised class warfare.
The unfortunate consequence of these tabloid attacks is that it will make the RBA’s senior officers even less willing to maintain a public profile, weakening the very accountability Milne says he is in favour of.
posted on 07 April 2008 by skirchner in Economics, Financial Markets, Politics
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Saved Not Spent II
An opinion poll finds that a slim majority would prefer tax cuts to be paid into superannuation accounts:
The survey was based on interviews with 800 Queenslanders and found 55 per cent of respondents would prefer the proposed tax cuts to be delivered as extra payments to their superannuation fund. This included a majority of Labor and Coalition supporters.
Only 38 per cent of people wanted the money upfront through lower taxes.
This is an interesting result, because there is nothing to prevent people from putting their tax cuts into super voluntarily. The only reason to favour having the choice made for you would be as a solution to an imagined collective action problem: I might save my tax cut, but if others don’t, the consequences could be inflationary, so a policy that is also binding on others is to be preferred. This policy preference is likely the result of a cognitive bias: the belief that other people are less prudent than ourselves (I’m sure Andrew Norton would have hard data on the extent of this belief). In reality, if we think saving a tax cut is a good thing, then others probably see it that way too.
posted on 29 February 2008 by skirchner in Economics, Financial Markets, Politics
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The Futureless Future Fund
It says a lot about the Future Fund that our first real insights into its investment strategy and performance should come via a Senate Estimates Committee hearing. As we have noted previously, the Future Fund’s ranking in international comparisons of sovereign wealth fund transparency and accountability lies somewhere between that of the State Oil Fund of the Republic of Azerbaijan and the National Oil Fund of Kazakhstan.
Given recent market conditions, it should not come as a huge surprise to learn that the Fund remains around 75% invested in cash. This is little different from leaving the funds on deposit with the RBA, the more traditional home of budget surpluses. This did not stop the headline writers (‘Future Fund’s $700m hit’; ‘Future Fund Flounders’) and Coalition Senators from making hay out of the Fund’s few non-cash investments. As we predicted here, the Future Fund’s investments will inevitably become a political football and today’s headlines are just a taste of what we will see as the Fund expands the scope of its investments.
Unfortunately for the Coalition, the Future Fund is very much a creature of its own making and in many ways emblematic of the political and intellectual exhaustion that led to the former government’s defeat. This effectively lets the new government off the hook in relation to the Fund’s future performance under its current mandate
The new government is promising to hoard any increase in the budget surplus over and above the forward estimates. The government could very quickly notch-up budget surpluses of around 2% of GDP without any real effort, adding more than $20 billion annually to the Fund’s assets. With the Fund already set to meet its original mandate to provide for public sector super liabilities, Coalition Senators could make themselves useful by asking what further contributions to the Future Fund are actually for.
posted on 28 February 2008 by skirchner in Economics, Financial Markets, Politics
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