Back in late March in a piece about the supposed “Australian debt crisis“, one of the country’s most respected economists, Saul Eslake, had this to say about his fears about a possible Liberal-National Party federal government after the election:
“Like the Fraser government, an Abbott government may be divided between a leader who distrusts markets, has little interest in economics and is actually contemptuous of economists, a National Party that has reverted to its traditional agrarian socialism, and reformist liberals like [Joe] Hockey, [Andrew] Robb, [Malcolm] Turnbull and [Arthur] Sinodinos.”
Eslake was somewhat relaxed about the supposed Australian debt crisis (which Tony Abbott and the rest of the opposition now seem unwilling to talk about, or debate), but he was concerned about a possible Coalition government repeating the mistakes and lost opportunities of the Fraser years.
Depressingly, Eslake’s comments came to mind yesterday with Abbott’s claim that an emissions trading scheme was “a so-called market in the non-delivery of an invisible substance to no one”. (Hilariously, deputy Julie Bishop was trotted out last night to try and clarify what her leader had said; the best she could do was claim Abbott has “implied” he was referring to the European ETS).
Abbott has a bit of a thing about the phrase “so-called”. In a kid-glove interview with two News Ltd fans earlier this year, Abbott referred to “so-called Gonski reforms” and “so-called same-s-x marriage” within minutes (quite what justifies “so-called” about as straightforward a term as “same-s-x marriage” isn’t clear, but anyway). But the rest of his description of an ETS betrayed total lack of understanding about how markets work, and the nitty gritty of his own party’s carbon policy, which will use a form of trading.
Indeed, according to the unfortunate opposition’s climate change spokesman Greg Hunt, the Coalition’s Direct Action policy “is a classic market mechanism”.
No one else seems to have a problem with “invisible” markets. In many cases, where there is no physical market, the trades can be settled in cash. The various indexes (shares, currencies, etc) are cash settled. And in case Abbott doesn’t quite understand, there is a whole group of financial products where what is traded is “invisible” and weightless (as he has previously claimed CO2 was) — they are the many option-type products, where you buy or sell a option to buy a product or an index or a share. And then there are the esoteric products such as credit default swaps, which are a form of financial insurance. The amount of cash paid over at the end reflects the gain or the loss and is based on an underlying market price.
Indeed, for any economy beyond subsistence level, trade in esoteric products is critical, and not just in financial services. Any knowledge worker is in the business of providing invisible, weightless products. What do politicians like Abbott provide? They’re handsomely remunerated for providing the invisible product of leadership.
But despite Abbott’s ignorance, the ETS will be a market and subject to law, just like any other market in Australia, be it equities, interest rates, coal, wheat, gold, wool, oil and the host of other financial products and commodities traded here and offshore. Market regulators such as ASIC, plus huge swathes of the Australian law industry, have been preparing for the start of an ETS, producing rules, regulations, training manuals, and opinions as to trading behaviour and the like.
If Abbott has any problems coping with this level of information, he could ask Turnbull, or his putative treasurer, Hockey, for a briefing. And it was interesting that Hockey wasn’t out there last night trying to protect his leader from himself. But Eslake nailed it earlier this year: Abbott, whose intellectual heritage is from the socially and economically interventionist DLP, doesn’t like markets, and is openly contemptuous of economists. It bodes poorly for a would-be prime minister, regardless of his politics.