While Johnny and Pete appear to be hoping the credit confidence crisis worsens so as to scare voters back to their “safe economic hands”, Macquarie Bank’s Rory Robertson is telling the bank’s customers it doesn’t really matter who wins the election.
“As an economist, the question I’m increasingly asked is how much would any change of government matter for the Australian economy. From a macroeconomic perspective, my answer is: ‘probably not much’,” Robertson writes in his latest policy watch.
The interest rate strategist goes on to make the case that it’s not just a matter of Labor being “me too” on macro policy, the role and power of whoever is in government has been reduced. Summarising Robertson’s summary of an 3600-word argument:
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Notice that when the threat of US recession loomed, most everybody’s eyes turned to central bankers, not politicians. It’s the same in most “English-speaking” economies. And RBA Governor Stevens yesterday noted: “Both the Government and the Opposition are committed to an inflation target, an independent central bank and so on, so that part of economic policy won’t be any different.”
In my opinion, general perceptions about the extent to which governments around the world “manage” and “control” their economies greatly exceed the reality.
- Canberra’s macroeconomic management task today is a shadow of its former self. It’s not quite on “auto pilot”, but institutional changes over recent decades mean the Australian economy runs with less direct input from Canberra than ever before. Lacking traditional macroeconomic policy levers, the extent to which Canberra “manages” the economic cycle these days is modest compared with the situation, say, a quarter of a century ago. Disturbingly, both the Government and the Opposition now agree that fiscal policy in good times should be managed in a pro-cyclical way – regardless of the RBA’s counter-cyclical efforts – in order to limit Budget surpluses to a politically desirable level near 1% of GDP.
- Canberra and the rest of us – with help from the RBA and our floating A$ – are forced to make the most of whatever economic strength or weakness the global economy sends our way. (Robertson provides a long quote from Bank of Canada Governor Dodge that) highlights the high correlation between good times in Canada and good times here, both of which are driven much more by favourable global forces than by the “strong economic management” of politicians claiming credit in Canberra and Ottawa. Happily, the global economy has been “stronger for longer” in recent years than it had been in a generation.
- Despite Canberra’s control over the Australian economy being rather limited these days, any government still is at risk of being thrown out of office by angry voters, if the economy performs poorly. Thus the job of any modern Treasurer – Liberal or Labor – is not so much to manage the economy as to pretend to manage the economy. The biggest part of the job is to provide regular and upbeat economic commentary. A natural tendency towards exaggeration is helpful, in order to claim credit for all happy developments in the economy, whether or not they have anything to do with Canberra’s specific policy initiatives.
- An under-rated yet critical feature of the Australian system is that the RBA and Federal Treasury – institutions that are home to much of the nation’s economic brainpower – do not skip a beat when one Treasurer leaves and a new one arrives. The RBA simply continues to do its best to manage interest rates, inflation and the economic cycle. The Treasury continues its economic efforts behind the scenes, working hard to train up the new Treasurer as well as it trained up the previous one.
Even on the alleged main area of difference – industrial relations – Robertson reckons the economic gap between the government and opposition is much narrower than is widely advertised.
“In particular, the prominent advertisements funded by ‘business’ are misleading in that they describe an IR scenario that is not on offer,” he writes.
When the government reintroduced the “fairness test” in May, WorkChoices II reduced much of the workplace flexibility that came with original reform. Australia’s future IR arrangements sit between two clearly defined bounds – the coalition promising to not again remove awards as the “safety net” and Labor promising to not return to centralised wage fixing.
So relax. It’s only an election. You don’t have to keep your money under the mattress.