Troubled waters for a failing captain
The Kangaroo Knighthood farce has been diverting, but there is a growing sense that politics needs to refocus quickly given heightening international economic turbulence of which voters have little idea and which, publicly at least, has barely permeated the Abbott government’s governing narrative.
For it is not true that the government has no narrative. Prime Minister Tony Abbott and his ministers have told us until we’re bored rigid that Labor left the nation in dire debt, that the crisis this constitutes can only be solved by deep budget cuts and that we’ll all be ruined if that doesn’t happen.
Juxtapose this against the Australian business community’s current narrative: commodity prices and therefore national revenue has plunged, government is gridlocked, with Abbott showing none of the smarts necessary to lead it forward, and consumer confidence has been shot to pieces under rhetorical fire from the government itself.
That’s quite some achievement, a supposedly pro-business government destroying through crude and destructive politicking the very conditions that give companies the confidence to invest.
What does the public think? They don’t believe the government narrative that there’s a debt crisis, and therefore think the budget cuts stuck in the senate are not only unacceptable but unnecessary. They think the prime minister is a joke and that Treasurer Joe Hockey isn’t up to it. They can’t even remember the previous Labor government because this one has been so newsworthily bumbling.
To test this against reality, the fact that Australia is one of the few developed economies in the world where you can still put money in the bank and earn positive interest rates tells you almost everything you need to know. Almost, but not everything, because then there’s the falling Australian dollar which, heading steadily towards 75 US cents, should induce a jargonistic blast from the past – from the 1980s in fact, way back when Paul Keating was a storming economic reformer holding a national economic policy masterclass to explain the “J-curve”. It’s when a country’s trade deficit initially worsens after a currency devaluation because of higher import prices, then improves sharply as that lower currency makes exports more competitive, restoring national economic fortunes in the process.
If Abbott and Hockey had half a wit, they would rewrite the government narrative now around the resilience of the Australian economy and the promise that the lower Australian dollar, via the J-curve, brings for jobs and growth.
Instead, Hockey is being psychologically ground between his promise to deliver balanced budgets and the unreality – indeed, the near impossibility – of that being achieved during his treasurership. It is messing with his head, and there’s no obvious way out of this political double bind except to rewrite the government narrative completely which, with Abbott in The Lodge, would have to include a little something in the storyline for the Windsors. Abbott could always restore Sir Robert Menzies’ 1963 decision to name the Australian currency the “royal”. Menzies’ treasurer Harold Holt said “royal” was a “dignified” name with a “pleasing sound” and, happily, emphasised our “link with the Crown”. The “royal” decision stood for a few months until, under the weight of the public outcry, Menzies backed down and decided Australia’s new decimal currency would be the “dollar”.
Seriously, Australia can’t afford to practise politics at the level of children playing with blocks in daycare anymore – not without paying a price. Last week, a new government in Greece was elected that could be the pulled stitch that unravels the euro zone. The week before, the Swiss central bank untethered the Swiss franc on which it had put a ceiling for a couple of years in the interests of European financial stability, sending a shockwave through global currency markets. The week before that the Charlie Hebdo massacre saw international terrorism reach into central Paris. Before that, Islamic fundamentalism underpinned a siege and three deaths in Sydney’s Martin Place, too.
These are big-deal events. The world is facing a sophisticated and complex set of problems that require intelligent, effective and urgent responses. Meanwhile, the Abbott government can’t do even basic things such as make a change to a single aspect of health policy – the Medicare rebate – without making a rolling hash of it. It is politically too inept to negotiate a budget through the senate, something other governments – even those facing worse upper house situations than the Coalition faces today – have routinely managed to do.
Something is wrong, very wrong, with what is going on in Canberra right now, as the politics of the past week so graphically illustrates.
Sovereign risk from poor national government is on the verge of becoming the greatest risk Australia faces today. Not the industrial relations system. Not national debt. Not productivity. Not international terror. A bigger threat than them all is that the Abbott government struggles to practise politics at anything remotely close to the level demanded by the challenges confronting us, and shows no sign of getting better at it. Poor government goes to the very heart of Australia’s international competitiveness. Who wants to bet on or back a country that can’t run itself properly? That can’t get a minor health policy change right, let alone get a budget through?
In the parallel universe of the Abbott government, big media groups and their satellite shock jocks, the big problem apparently remains that some workers get penalty rates on public holidays and weekends.
Meanwhile, in the real world, concern – urgent concern – centres on stagnant growth and the threat of deflation in the major Western industrialised economies, slowing growth in China, successive rounds of competitive currency depreciations, the sustainability of the creaking European currency union, the deflationary impact of the reverse oil shock that is working its way through the system, and falling commodity prices in general. One has to go back to the 1930s to see as potentially serious a clutch of flashing warning lights as this.
A new element in the international debate is discussion of the rise of central banks as key, and largely democratically unaccountable, players on the world stage.
There was no popular democratic election for European Central Bank president Mario Draghi, for example, who just announced a 1.1 trillion euro quantitative easing program to try to stimulate economic growth in Europe and head off deflation. As Bloomberg describes the gambit, already employed by Japan and the US Federal Reserve with as yet unclear results: “When all else fails to make economies grow, create new money and buy government bonds.”
What if Draghi is wrong, and quantitative easing is just – as Keynes once described the ineffectiveness of monetary policy in stimulating economic growth – like pushing on a string? Who is going to pay the price? Who is accountable? We don’t get to vote central bankers out of office if they turn out to make dud decisions.
One ray of hope in a period of otherwise high political farce: assistant treasurer Josh Frydenberg, in a post-Davos interview in London this week, said something relevant and intelligent on current economic developments, something so at odds with what one has come to expect from Abbott government economic ministers as to astonish.
“You can see how central banks are manoeuvring against each other to get the upper hand with regard to the value of their currency to assist their domestic exporters and domestic demand,” he told The Australian Financial Review. “What we are seeing is currency wars now, which is quite significant.” Yes, it is. Tony and Joe, what have you got to say about it? How does the Australian dollar’s devaluation being steered by Australia’s Reserve Bank fit into it?
A hopeful sign, too, is the thoughtful speech at the McKell Institute on multinational tax and inclusive growth from former ANU economics professor Andrew Leigh, now the Labor MP shadowing Frydenberg.
When the juniors on the frontbenches of both the government and opposition are more relevant and make more economic sense than senior ministers, it’s pretty obvious what needs to be done.
Paul Bongiorno is on leave.
This article was first published in the print edition of The Saturday Paper on Jan 31, 2015 as "Troubled waters for a failing captain". Subscribe here.