At the last election campaign Kevin Rudd sold himself to the voters as a man of the future, and so it’s proving.
Even before we have the official figures to prove that we’ve gone into recession, his government is talking about how we’re going to manage the recovery — not just the period of convalescence, but the renewal of robust economic health.
Admittedly Rudd’s not alone in his optimism; not for the first time he is in tune with Barack Obama, who last week claimed to see glimmers of light at the end of the tunnel.
Indeed it is not all gloom and doom; it never is. There have been moments, now and then, when it seems that the punters are regaining a few shreds of confidence. Various surveys have suggested that there are pockets of at least temporary activity dotted around the economy and from time to time the stock market has taken a tentative lurch upward.
But while our leaders are absolutely right to try and fan these embers of hope, they would be most unwise to put what’s left of the rent on them. Economies seldom fall like meteors, in an uninterrupted, catastrophic descent. They tend to behave more like avalanches, with bits sweeping away everything in their paths but leaving patches of landscape almost untouched — of course there are always a few cases of miraculous survival.
Even the Great Crash of 1929 was an episodic affair. Legend has it that the market plunged like a banker leaping from a skyscraper window (another legend, incidentally; almost all of them survived to plunder again), but in fact it bounced around for some weeks before really hitting bottom. The current crisis has little in common with the events that led up to the Great Depression, but it is likely to be long and painful and it almost certainly has a long way to go before grounding out.
Even when it does, the process of rehabilitation will be neither quick nor straightforward. While it is natural and even commendable for governments to be positive as they look forward, they should also be realistic about dealing with the illness before deciding how they’ll celebrate when the patient is eventually released.
To be fair, Rudd and his treasurer Wayne Swan, who appears to thrive on crisis management, have both made it clear that things will get worse before they get better. It is already clear that the losers in the forthcoming budget will not just be the richest in the community; the cuts will have to work their way well down into the middle income groups to achieve the kind of savings Finance Minister Lindsay Tanner, who remains the most realistic voice in Canberra, has foreshadowed.
Even more telling, at least some of those expecting a boost may be disappointed. Single pensioners will undoubtedly get a rise, but it is unlikely to be on the scale they are hoping for. What spare cash there is will have to be shared with the growing number of unemployed, now almost certain to go over ten percent of the workforce.
Rudd and his troops are doing their best, but as with the afore-mentioned Great Depression, they are heavily constrained by what happens overseas and in any case are working off a blank sheet; there are simply no precedents they can invoke to guide them. It should be said that in the circumstances they have done pretty well.
After the first day of the G20 meeting in Washington Swan said that there wasn’t a finance minister in the room who wouldn’t be glad to swap places with Australia. Well, he would say that, wouldn’t he? But no one — not even Malcolm Turnbull — has said he’s wrong. Indeed no less a figure than the chief economist with the International Monetary Fund, Olivier Blanchard, has rather implied that he is right.
The IMF forecast for Australia’s contraction (or negative growth, as economists insist on calling it) this year is just 1.4 percent. This is a fraction above the global average of 1.3, but by far the best of the developed economies, whose average is 3.8. Moreover, Australia is almost unique among the G20 in not having had a major bank failure or bail-out. To date it has maintained its AAA credit rating, although borrowing beyond the $200 billion limit (which may become necessary to fund further stimulus programs) would put this in some jeopardy.
Rudd is not bragging when he says that, comparatively speaking, Australia remains in pretty good shape. Moreover he has the general endorsement of the IMF: Blanchard praised the speed and size of the initial stimulus packages, and says they should continue in the form of infrastructure spending (to which the government is already committed) or targeted rebates to encourage spending (like, for instance, the first home owners grant).
So whenever the recovery does get under way (and don’t hold your breath) Australia should be extremely well placed to become a preferred destination for investment. We may not offer the maximum return, but we will have demonstrated we can absolutely minimise the risks. Continuing and capitalising on our relative economic stability is unquestionably the way forward. If that involves the odd moment of buoyancy, so be it.
Which is why it was so silly of the opposition’s Treasury spokesman, Joe Hockey, to accuse Rudd of using the recession to distract attention from asylum seekers, as if the global financial crisis was less important than a couple of hundred would-be refugees. Hockey and his more excitable mates need to forget the tabloids and get back to political reality.
It’s the economy, stupid.