The Federal Opposition’s Treasury Spokesman, Joe Hockey, is quick to interject in parliament, often opening his mouth before engaging the brain, ready with the quick, witty one liner in interviews and in speeches (“Australians have never been richer”) and unashamedly populist (He doesn’t like the Australian National Gallery buying foreign art). Joe also reckons the federal government is running out of “fuel” to get the economy through the global financial crisis. It’s more in the same vein as the line he pushed at the House of Reps Economics Committee last month fronted by Reserve Bank Governor Glenn Stevens. Hockey’s efforts at that meeting were larger than life: he said a lot, but with little insight. In fact the other waste of space, Kevin Andrews, the former Immigration spokesman in the Howard Government, showed more nous. Yesterday, Hockey fronted Laurie Oakes on the Nine Network and claimed the Rudd government had spent too much money trying to stimulate the economy and would have nothing left if things got worse. He also questioned Stevens’ claim that delaying the stimulus spending would cost more in the long run. “The Reserve Bank governor and everyone else hopes that this is a 100-metre race and not a marathon,” Hockey said.  “If it is a marathon, then the government is not going to have any fuel left in the tank for the last 10 kilometres.” That’s a colourful line, and yet it’s not new: he trotted it out in this Q&A with Governor Stevens. 

Mr Hockey: So, if you do go very hard early, you would hope it was a 100-metre sprint rather than a marathon.  Mr Stevens: I think the point is that, on our part at least, the point of using monetary policy early on the way down, as on the way up, is that you end up curtailing the down part of the cycle and you do not end up in the marathon — you make more likely, say, that it is a short-term event and not a long, drawn out one. That is the intention.  Mr Hockey: I am more focused on the combination of monetary and fiscal policy. I know you only have control of monetary policy, but it is the combination.  Mr Stevens: Sure. I take it that you are going to the question of should some ammunition be saved for later, in case it is longer. You can make that argument, but I think you can also make the argument that, the longer you wait, the more ammunition you will end up having to use. These things can get a sort of self-fulfilling momentum behind them and we may or may not be able to head that off. But I think you should try to head that off, if that is possible — certainly, on monetary policy that is my thinking. The same thinking, of course, means that, if you frontload your measures, you are going to have to stop doing measures than you did in other cycles, but that ought to be a good thing, because you hopefully will have got ahead of things.”

 And that’s what Hockey doesn’t understand. The US, UK, Japan and Europe all took ages to wake up to the impact of the global financial crisis and then the recession. Their policy and rate cuts were behind the curve (to use the jargon of the policy wonks). Their stimulus packages and the rate cuts happened as and after the respective economies tipped into recession. At least the Reserve Bank and the Federal Government have got in ahead of Australia’s slide into recession later in the year. But Hockey reckons he knows a bit about economics, even more than the Reserve Bank Governor. 

Laurie Oakes: So you know more than the Reserve Bank Governor, you know more than Roger Corbett, the former CEO of Woolworths and a Reserve Bank board member, who’s criticised the Coalition for holding up the latest package?  JH: Well it’s interesting — look, I like and know Roger Corbett well, I like — he got his facts wrong. Actually, the legislation is not held up in a Senate committee as he claimed, it’s actually passed through the Parliament and it’s under way.
LO: But the Opposition tried to hold it up.

JH: As for the governor of the Reserve Bank, as for the governor of the Reserve Bank you know, the Governor of the Reserve Bank’s, in our view, got it wrong many the past, he’s actually doing a very good job overall, and I said that to him publicly, but you know no-one’s got the entire wisdom on this, Laurie. There is a massive amount of debate globally about whether actually government stimulus packages at this time have any impact at all and we’re part of that debate. We are no different in that debate to more than 100 economists that took out an ad in the Wall Street Journal asking President Obama to pull back on the stimulus packages, because they claimed it wouldn’t have any positive immediate impact on the American economy.

Yes, American economists: you can count on one hand the number of American economists who warned about the dangers of unchecked credit, the subprime crisis, the housing bust and the US recession.

The revised US 4th quarter growth figures showing a bigger than forecast (by 72 US economists in a Bloomberg survey) slump of 6.2% (1.6% quarter on quarter), the biggest drop in 26 years, show how out of touch most American economists have been as the recession has accelerated in the past four months.

But Hockey is merely retailing the policy ideas of Professor Warwick McKibbin who reckons there’s no crisis and is a believer of the fuel in the tank argument, as Bernard Keane revealed back in early February after the Professor threw his lot in on Government’s stimulus package.

Seeing as the Professor is also a non-executive member of the Reserve Bank board, it must make for some fascinating tensions. Tomorrow will be no different. Funny how Hockey didn’t mention the Prof’s views as a rebuttal to Laurie Oakes’ point about the strong support given to the stimulus package by fellow RBA board member, Roger Corbett.

The “fuel in the tank” argument might be a good line, but what use is it when the engine has run out of spark and the car is stopped? Do you throw fuel on a dead fire?

Peter Fray

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Peter Fray
Editor-in-chief of Crikey