In "The Triumph of Politics" , David Stockman brings us a front-line report of the miscalculations, head-on collisions, secret manipulations, and alliances that led to the failure of the Reagan Revolution, a failure that has produced a staggering deficit of one trillion dollars instead of the balanced budget the President had promised the electorate by 1984………. Far more than any journalist’s expose̒. "The Triumph of Politics’ is an insider’s revelation of what happens when a radical ideology backed by the power of the Presidency runs into the world of personal rivalries and special interests and ignores our continuous national tradition of accomodation and compromise.
Cover sheet of David Stockman’s "The Triumph of Politics", 1986.
Peter Walsh always had the reputation of being the ‘hard man’ of the Labor Government during the 1980’s. He was closely involved in all aspects of economic policy, ranging from the systematic and far-reaching deregulation of our financial system to the relentless cutting of government expenditure. He had the stamina and conviction to cope with the arguments and the endless meetings of the Expenditure Review Committee – and the inner fortitude to say ‘NO’ to a whole range of special interest groups. Peter Walsh entered Parliament thinking that the economic ‘experts’ knew it all – only to have a rude awakening when he saw them at close quarters. He knew that the Labor government had a unique opportunity in the 1980s to achieve fundamental and lasting change to our whole economy – and he tells of how some of those opportunities were seized, but others tragically missed.
Cover sheet of Peter Walsh’s "Confessions of a Failed Finance Minister", 1995.
But if Obama is not blinded by dollar signs, he suffers from a cultural class myopia. He’s a patsy for "glittering institutions that signified great achievement for a certain class of ambitious Americans". He surrounded himself with the best credentialled, most brilliant policy mandarins he could find, even if almost none of them knew anything about what it was like to work in a small business, manufacturing, real estate, or other parts of the economy…… Lawrence Summers Machiavellian efforts to minimise or outright exclude the input of of ostensible administration economic players such as Paul Volcker, Austan Goolsbee and Christina Romer seem to have engaged his energies as much as the policy issues at hand.
"He Had A Dream", the Australian Financial Review insert of 27/8/ 2010, where Frank Rich reviews Jonathan Alter’s book "The Promise: President Obama. Year One."
In the midst of the crisis, while visiting the London School of Economics, Queen Elizabeth ll asked why the economics profession had failed to see it coming. In fact, most economists did not forecast the coming turbulence. This set includes, virtually all academic economists, those presenting the official views of the IMF and OECD, and those representing most national governments. For the record, however, a few did give advance warnings. They told "stories" about what they felt was going wrong, based on insights mostly drawn from pre War ll economists. The more interesting question is why no one, including policymakers, was inclined to take those warnings seriously.
From an essay dated July 2010 by William R White "Some Alternative Perspectives on Macroeconomic Theory and Some Policy Implications" www.dallasfed.org
Quotes above: The Core Messages (note old journalistic adage – ‘90% of the message is in the head-note’)
- Reagan restored America’s belief in itself, but failed at the fiscal level by saying ‘yes’ to almost anybody. In many ways he is the father of America’s welfare society and the architect of its huge military industrial complex.
- ‘Success has many fathers’, but Peter Walsh (Finance Minister under Hawke) has never received due credit for his major contributions to Australian fiscal policy. He remains Ecinya’s most highly regarded post-war politician.
- The jury is out. Will Obama succeed, will he fail? Does he know that a strong economy produces balanced social policy? Has he become more of a celebrity and less of a leader? We sincerely hope not.
- Outside of Fed headquarters some of the most revealing and cogent arguments are developed in relation to fiscal and monetary policy. The St Louis Fed Review is notable. This essay from the Dallas Fed is excellent and worth a visit.
PREAMBLE
Australia is but 1% of the global economy which means that 99% of the global economy is beyond our borders. On a per capita basis we can get to about 6% of the global economy which means that 94% of the global economy resides outside of our borders. In a world of circa 6.8 billion people we are 0.3% of global population. Our recent economic managers Messrs Rudd and Swan have had a tendency to grossly exaggerate their intellectual and economic management capacities on the local and world stage. The hubris of travel abroad and five star hotels can impact on the ego of almost anyone, including our very own editor in his younger days of first-class business travel.
Based on our current and past observations and experience, an alliance of the Greens, some of the independents, and Labor might well UNDO the good works of Peter Walsh, Paul Keating, Bob Hawke, John Howard, and Peter Costello. If their behaviour and policies are any guide such a combo might focus on wealth redistribution rather than wealth creation. But we might be lucky. Luck is not a good policy premise if you are after sustainable outcomes. The independents would be wise to ask themselves "Who can we trust to run the economy without their personal aspirations and egos getting in the way of good policy?"
If America remains sluggish, then China slows, and Australia is impacted adversely. Pretty simple really. Our export income falls, our imports stay relatively high, we tax emerging miners, unemployment rises and our low level of public debt rises and becomes a problem. ‘Vision’ is just a fancy way of saying anticipation of problems and recognition of opportunities. You don’t need too much vision to run the Australian economy well, just an abundance of common sense. What makes good common sense, generally makes good economic sense.
BELIEFS AND VIEWS and/or GUESSES
‘INFLECTION’ means ‘change’. ECINYA is of the view that the next bull-market has the potential to start sometime in the fourth quarter of 2010. This means possible early recognition in September/ October and some momentum going into November/ December, with September being the month where markets generally make their intermediate low. Our considered guess is circa 950 for our global proxy the SP500. But if Obama does not address some of America’s structural problems, then his impotence will be felt around the world. The November mid-term elections might propel him back to the centre of the economic debate. The global recovery is, in our view, underway but we would like to see some bold and frank public utterances from the home of global free enterprise.
What does this require? It means that America has to move towards rational economic policies and our various articles on Kotlikoff is, in our view, a substantial part of the solution. It also will require some evidence that the structural problems of America are in the process of being properly addressed – the twin deficits, electoral reform and tax reform, reduced defence spending, a viable health service, attitudinal things "less sizzle, and more steak’, less imports and more exports, less dependence on foreign oil. Progress is an evolution, NOT a revolution.
WHAT LEVEL OF GOVERNMENT EXPENDITURE IS VIABLE?
It seems that governments all over the world having been asleep at the wheel as the years of excess cascaded into monumental folly have now over-reacted and that the public sector is running at about 30% of GDP with ever-mounting public debts squeezing the life out of the private sector. The growth of the Asian economies with cheap labour and cheap labour on-costs are the suppliers to the lazy west and every import has become a job created abroad. The reduction of imblances between east and west is a good thing, but the gains to the west have been squandered in poor domestic policy settings and poorly conducted wars abroad. Our guess is that government expenditure as a percetage of GDP needs to be closer to 20% than 30%.
DOUBLE DIPS
David Rosenberg ex Merrill Lynch and now with Gluskin Sheff of Canada, says don’t talk about double-dips, the first recession is not yet over. What he means, essentially, is that the recovery in the markets has been force-fed by government and ‘the recovery’ is really a statistical recovery engendered by policy such as ‘cash for clunkers’ and the ‘Troubled Asset Recovery Plan’. In his view the underlying market and economic metrics are still exceptionally weak. We cannot disagree.
WILLIAM R WHITE
Just as the Australian response to the’global financial crisis’ was over-done, over-budget, and poorly targeted William White says the fault lies in an overly strict belief in the excessively Keynesian macroeconomic models that determine and guide policy responses. He along with a number of other authors is of the view that the stimulus packages have largely failed. Policy should be a mixture of art and science, and reliance upon just the science has led to sub-optimal outcomes, possibly laying the seeds for further strife. He seems to say that Keynes has to be blended with the Austrian School led by Von Mises and the work of Hyman Minsky. Without knowing it he refutes the anti neo-conservative essay written by Kevin Rudd just after he became PM.
WHAT SHOULD GOVERNMENTS DO?
They have no money other than taxes and the printing press; ANY money they earn from direct sources (other than gambling and traffic offences) is usually less than the cost of the service they render, so they should spend taxpayer’s money carefully, respectfully, wisely. The $43 billion broadband policy is likely to be a fiasco, a travesty, a disaster.
AND WHAT OF BANANAS AND APPLES AND DAIRY PRODUCTS AND BOB KATTER
‘Free trade’ is a nonsense concept. Let us just opt for ‘beneficial trade’. Regional Australia has been neglected for far too long. Little wonder that Bob is upset. If we cannot do the math on why we should NOT import bananas then something is wrong. Have a tariff, that’s OK. Likewise apples. In relation to dairy farmers, how many have committed suicide as Bob Katter says? Are the deaths as awful as troop deaths abroad? Why should the city get cheap milk if it means that a dairy farmer cannot support his family and earn a return on his capital investment? Nonsense upon nonsense is crazy economics and poor social policy…….. and poor mathematics. As an aside the technology being developed by Papyrus Limited in relation to banana husks for paper and timber is interesting.