HEAD QUOTES TO ASSIST PERSPECTIVE
The Republican Party, now in the grip of the Reagan forces, had abandoned the reality of the retail world in which politics had always been done; they had put emotion to work in the service of ideology. The politics of the nation had been given into the hands of the salesmen, and it was certain that the salesmen would win, for they had learned the secret of modern politics, which is that no one can refute the arguments of the heart.
Earl Shorris "A Nation of Salesmen: the tyranny of the market and the subversion of culture", 1994
This (essay dated 8/2/2009) has been written to attempt a brief articulation of a major concern, that far from saving Australia from the ‘global financial crisis’ the actions, rhetoric and policies of the current Australian government are going to totally immerse us in it, or delay our recovery from it, or both. We are just 1% of the global economy. Time is needed to see where the stimulus packages of China, America and Europe will lead the world. Current local policy prescriptions seem to be pre-emptive, excessive, and poorly targeted.
Ecinya respectfully suggests that Mr Rudd has been caught by the gentle breezes of Kirribilli House, the star filled nights, the easy harbour-side celebrations, and with aligned minds in attendance, each with a glass of chardonnay poured from the public purse, is moving to govern through the prism of his ego or his own lack of self -esteem, or some other psychological disorder. There is no air of quiet confidence that creates a sense of managerial competence. Rather, there is a sense of papal infallibility. If God had meant politicians to lie he would not have invented behaviours like obfuscation, false and misleading and deceptive conduct, innuendo or delusions of grandeur. Mr Rudd was elected to govern, not ordained. Government is principally about economic management, law and order, and future investment (education, social and commercial infrastructure). On a more global perspective Mr Rudd has not mentioned the economic leakage caused by the wars in Afghanistan and Iraq, and the major transfers of wealth caused by the oil price surge, and the out-sourcing of global production to China, India, Mexico, Brazil, Canada and elsewhere. Essentially, Mr Greenspan gave the world this recession, this ‘crisis’, by creating a false economic boom to hide a war based on falsehoods. This is a ‘made in America’ recession. Led by the local branches of the Wall Street machines like lambs to the slaughter, we all participated with gusto and glee. The music has stopped, the game of musical chairs is over, and many old maids find themselves unseated. A wolf in sheep’s clothing provides no solution.
A brief analysis of the global financial crisis with special emphasis on Australia and the role being played by the Prime Minister, Kevin Rudd, written 8/2/2009 and published in Ecinya Insights 1/9/2009 (our web-site launched on 28/7/2009).
Politicians, and especially Ministers, are in privileged positions in which information is readily accessible. Those who fail to get, or choose to ignore the facts, or who fail to apply whatever intellectual capacity they have to analysis and decision-making, are culpable. Most culpable of all are those who fail to consider the longer-term consequences of what they do, or knowingly make bad policy decisions because they think it is politically smart. There should be some things that politicians will not do.
Peter Walsh, "Confessions of a Failed Finance Minister" ,1995.
The overall responsibility of power is to govern as reasonably as possible in the interests of the state and its citizens. A duty in that process is to keep well informed, to heed information, to keep mind and judgement open and to resist the insidious spell of wooden-headedness. If the mind is open enough to perceive that a given policy is harming rather than serving self-interest, and self confident enough to acknowledge it, and wise enough to reverse it, that is a summit in the art of self government.
Barbara Tuchmann, "The March of Folly: From Troy to Vietnam", 1984.
This model, not good luck, is the reason Australia has enjoyed a fifteen year expansion…. It is defined by a floating exchange rate that operates as a shock absorber, a credible medium-term inflation target that governs interest rate policy at the discretion of an independent central bank, a shift towards a more decentralised wage-fixing system, and a permanent budget surplus strategy set at about 1 to 1.5 per cent of GDP.
Paul Kelly, The Australian, May 2006.
A rich and generally unloved father dies after a long illness lasting nearly 12 years. After the funeral and a brief period of false mourning his 4 surviving children begin to criticise their father’s personal legacy that gave rise to his fortune, his cars, drivers, premises, status and his abundant cash. His children inherit the estate after intensive discussions with his executor and subsequently go on a spending spree with not a lot to show for it. Pretty soon they are out of money and have to mortgage assets and future cash-flows to maintain their profligate lifestyle. In their defence a few of their good mates benefited enormously from their good fortune and bountiful generosity. The children are, of course, the gaggle of four – Kevin, Wayne, Julia and Lindsay. They were, with just one exception, decent people that having not earned the fortune themselves, and having not liked their father benefactor, just got too excited at first, then careless. The executor was, of course, Ken Henry, who replaced his old and wise boss, Ted Evans, and Ken was pleased to be able to keep the children happy and fulfilled.
Ecinya Insights article 1/7/2010.
Quotes above: The Core Messages (note old journalistic adage – ‘90% of the message is in the head-note’)
- Ronald Reagan mastered the art of spin, even when he was in early stage dementia in his second term. Many politicians have come to emulate him, and his poor economic record is mostly overlooked.
- We long-ago believed that the Rudd government would be a mistake. Clearly the Labor party hierarchy came to the same conclusion in replacing Mr Rudd with Ms Gillard.
- In the post-Menzies era Labor’s Peter Walsh was, in our view, the most outstanding Finance Minister. Mr Walsh entered the Australian Senate in 1974, was Minister for Resources and Energy 1983-84, then Minister for Finance 1984-1990, before retiring in 1994.
- Ms Tuchmann, an American, is a pre-emminent political historian, and her book is a political masterpiece.
- Paul Kelly has authored several major books on Australia’s political history. He writes for The Australian as Editor-at-Large.
- The rich and unloved father was the John Howard-Peter Costello nexus. Their legacy came from the best years of the Hawke-Keating nexus, but Howard-Costello did not squander it, as the structural changes remained intact, enabling them to repay the Keating debts relatively quickly, aided by more than a little help from China and Asia generally
PROGRESS IS ALWAYS A LESSON IN ECONOMIC HISTORY
Prosperity is the tide that carries each and all of us towards realisation of our social and material goals and aspirations. Australia is richly endowed in terms of natural and human resources. Thanks to Robert Gordon Menzies the post WWII years gave us a real ‘eduction revolution’ and the means-tested Commonwealth scholarship expanded universities beyond the province of the established rich and gave the sons and daughters of the returning soldiers, aviators and naval personnel the opportunity to attend university. Doctors, engineers, architects, merchant bankers, economists, teachers, and scientists all flourished under the benign dictatorship of the Menzies era which lasted from December 1949 to January 1966. It was a period of relative stability. Menzies gave Australia its base, Hawke-Keating and Howard-Costello consolidated the legacy and prepared Australia for the challenges of the 21st century. There was a brief disruption under Emperor Gough Whitlam and Headmaster Malcolm Fraser, but the renaissance that came under Hawke-Keating was consolidated under Howard-Costello. Our latest set-back has come under Rudd-Gillard- Swan-Tanner, but we will recover over time. Ecinya favours a Liberal government because they have the better track record, but whomever wins the election we hope will overcome the debacle that the Rudd government became.
BUT Ecinya did give itself,and its readers, a warning dated February 2009, published September, 2009.
THE ELECTION OF 21 AUGUST, 2010
In broad terms the Australian economy comprises 40% small business, 30% government (both State and Federal), and 30% ‘big’ business. We have always believed that elections are important and that the economy works better when the government share of gross domestic product (the value of all goods and services produced) moves closer to 20-25%. At circa 30% government becomes a drag on the national economy. We also believe that monetary policy cannot overcome the cascading effects of bad fiscal policy. Despite what some economists might say there is a decisive and irrefutable link between monetary and fiscal policy. Misallocation of (scarce) resources relative to unlimited wants and needs, pushes interest rates and taxes up, and economic growth down.
ELECTIONS GENERALLY
Governments seeking re-election generally run on their record. Oppositions seeking to be elected generally run on policy and principle. This election is ‘somewhat’ unique in that the Labor party changed leaders (Gillard replaced Rudd) just prior to the election being called, and the Liberal party changed leaders earlier this year (Abbott replaced Turnbull). Other parallels are when Malcolm Fraser became caretaker Prime Minister after the Governor General sacked Gough Whitlam in November 1975, Bob Hawke replaced Bill Hayden in March 1983, and Kevin Rudd replaced Kim Beazley in December 2006. Mr Rudd then defeated Australia’s second-longest serving Prime Minister, John Howard, in the November 2007 election.
ECINYA does not know which party will win the election. We just hope that they return to the centre, and give balanced free enterprise a fair go. Big government generally results in big deficits, on both the current and domestic front, higher interest rates, and slower growth.
PROGRESS comes from incremental change. There are no silver bullets or ‘revolutions’. Slogans only make sense when they are consonant with constructive actions.The GST was a ‘revolution’ that was debated over almost three parliamentary terms … Keating, then Hewson, then Howard. It was an idea whose time had come!
Whitlam was fiscally inept, Fraser lacked a progressive agenda, and Rudd was awful in the extreme. Hawke-Keating-Walsh were excellent as was Howard-Costello. Both Hawke and Howard lost the plot in their final terms and tried to buy yet another election. The result was Keating got rid of Hawke, Rudd got rid of Beazley, and then Rudd defeated a tired Howard. It is interesting that the illegitimate Fraser government rising on the ashes of axed Whitlam fell short of expectations and was in turn easily beheaded by Hawke. We have a real feeling that the illegitimate Gillard government, should it be elected, will share a similar fate. Mr Rudd should have been given the opportunity to go the people. Ms Gillard looks vacuous. In today’s Australian Greg Sheridan says: "In her short tenure, she has so far emerged as a worse prime minister than Kevin Rudd on substance, process and coherence, all the ostensible reasons for her replacing him."
BACK TO THE FUTURE
On 2 November, 2007, just prior to the last election, Ecinya set out its policy prescriptions. Not much has changed since then. We now review our policy prescriptions of 2007 edited with our UPDATE comments..
- Extended Federal Parliamentary term: Australia is an extremely talented and lucky country with abundant human and natural resources Our potential will never be fully realised if we seek to change policy direction dramatically every three years. The economic and political cycles have become destructively disengaged at a time when economics and politics are more engaged than ever. Policies take time to work in a globalised world of shifting trade and political alliances and often need to be fine-tuned over several parliamentary terms. Good policy badly executed results in poor outcomes. Bad policy well executed or badly executed results in even poorer outcomes. We suggest that the Federal parliamentary term be extended to a four year term with a minimum period of 3.5 years allowing the incumbent government a window of 6 months in which to call the next election. UPDATE: No change of view from 2007.
- Australian personal taxes are far too high, extend the GST to food. UPDATE: The exclusion of food from the Henry tax review should have caused Henry to refuse to write the review. The GST is a big, elegant tax and it is relatively easy to make the food inclusion neutral at inception. The end result of excluding the GST from the review was the stupid idea of an excessive Super Profits Tax on the resources industry. The amended version of the tax, in our view, is flawed. Additionally, other stupid taxes such as payroll tax, and workers compensation taxes, remain which distort economic decision-making and reduce the desire of business to employ people and/ or to grow their businesses. ‘STUPID’… Silly Taxes Upset Proper Industrial Development.
- Capital gains taxes are too complex and counter-productive. The reform proposal is that all gains should be treated as ordinary income on a sliding scale: 100% gain taxable under year 1, 80% year 2, 60% year 3 etc etc. After 7 to 9 years all gains are tax free. This would bring a lot of residential property into the property markets. UPDATE: Capital gains which reduce capital mobility are unchanged.
- Create a minister for state liaison: UPDATE: Federal budget accounting is a shonky exercise. As an annexure the Federal budget should consolidate itself with all of the states distinguishing between capital works and operational expenditure so that we know where the money comes from, and where it goes to. With such a large share of GDP government needs to be more accountable.
- Education should be handed over to the Federal government with state councils, including the responsible state and federal ministers, created to monitor results and direct policy. UPDATE: This is happening, albeit slowly and without sufficient transparency and clarity.
- Health should be entirely federal or entirely a state responsibility. UPDATE: This is now happening in a haphazard way.
- Jobs: It is impossible to be pro-jobs and anti-business. We are excessively focused on exports. We should have an import replacement policy as well. UPDATE: No progress here. In fact we have gone backwards and even reversed many of the Keating work-place reforms. Small business, for purposes of the wrongful dismissal laws needs to be re-defined to something like at least 50 to 100 workers.
- Water resources needs an agreed national approach: UPDATE: Still not happening.
- Ethanol and other forms of energy saving needs a proper bi-partisan and appropriate policy response. UPDATE: With the failure (thank goodness) of Copenhagen this may now happen, but if the greens get the balance of power in the Senate there will be a monumental impasse and stuff-up.
- Aboriginals need dedicated colleges and broad curriculums encompassing the arts as well as the sciences. UPDATE: Aboriginal policy is still sub-optimal.
- The balance of Telstra should be sold as soon as possible. UPDATE: Almost there after the excess parked in the Future Fund is disposed of.
- Big business (market cap over say $250 million) should report annually at the end of every quarter with their statutory reporting date remaining unchanged. UPDATE: Has not happened. Also continuous disclosure is a bit of a joke in many instances and deceptive and misleading statements should result in two yellow cards, then a black card, and then an investigation or enquiry. Too many companies telling porkies.
- Auditors should read aloud their report to shareholders at the annual general meeting to remind shareholders, boards, and themselves, that they have a duty of care to shareholders and creditors.
Big Addendums:
(1) Political donations should be banned and an electoral bank established with distributions pre and post election to be distributed on a formula basis. Tax deductions should apply. Ecinya does not have a fully developed thesis on this , but we have written a discussion paper …… Crony capitalism: Capitalism’s cancer. Crony socialism: Socialism’s endemic malady.
(2) We live in a 24/ 7 world. So abolish penalty rates for weekend work and overtime even for priests, rabbis, and ministers who have to work on Saturdays and Sundays. People who work over 40 hours per week can enter into separate contracts in relation to overtime. Job protection does not work, and Greece is just another good example of the folly of job protection and uncontrolled welfare, albeit in a context where tax evasion is rampant. The Henry report recommendation on centralising welfare was totally ignored.
THE GLOBAL FINANCIAL CRISIS DID not IMPACT UPON AUSTRALIA TO ANY SIGNIFICANT DEGREE.
Simply stated, we over-reacted to make the Prime Minister, the Deputy PM, and the Treasurer look good. We absolve Mr Tanner, regarding him as probably sensible, but too easily over-ruled.
In 2006 every Australian had a sovereign-cash-in-the-bank balance of about US$1000. At the end of 2009 the sovereign debt per capita is about US$8,400. The fiscal failures of the Rudd-Gillard-Swan-Tanner gaggle of four achieved this troubling result. To look at sovereign debt as a simple proportion of GDP is an over-simplification. This explains to a significant degree why we have the only central bank in the world pursuing normal central bank interest rate policies. If China slows dramatically, and Europe and America do not recover, our vulnerabilities and our narrow income base, dependent on resources, plus the size of our import bill, will become apparent.
Other errors of the Rudd-Gillard-Swan-Tanner years:
- Environment: Emissions trading scheme. Home insulation scheme. Blow-outs in green loans and solar school systems.
- Education: Blow-outs in school construction programme. Shortfall in computer for each child programme.
- Consumer: FuelWatch, GroceryWatch
- Telecommunications: National broadband no viable case presented, but it IS ONLY about $30-$40 billion
- Governance: Promised 30% cut to ministerial staff reversed. Backflip on Auditor General vetting of political advertisements.
- Health: Only six of promised 36 super GP clinics are fully operational. Only 52 of 2500 new aged-care beds have been opened within 2 years.
- Skills: Only one of 2650 trades training centres fully operational.
- R&D: Failed to secure passage of R&D reforms before parliament rose.
- Workplace relations: Flexibility removed and wrongful dismissal laws onerous for small business.
- Tax reform: Did not happen. A fiasco.
- Political donations: Legislation to cap political donations and election spending by political parties stalled.