Cross-posted at New Matilda’s election blog PollieGraph.
As I write, I’m listening to Joe Hockey claim that Labor would “hand over the levers of a modern 1.1 trillion dollar economy” to “union bosses”. According to Paul Keating, it was “union boss” par excellence Bill Kelty who suggested handing over the levers of monetary policy to the Reserve Bank and setting a 2-3% inflation band to guide policy. Perhaps Peter Costello, in retrospect, would like to have denounced such a suggestion as probably emanating from the evil Socialist Forum or something, because the logical ramifications of one of the few reformist decisions he made are now coming back to bite the government.
Writing in Crikey this morning, Alan Kohler suggests that Glenn Stevens may well have contemplated a 0.5% rise in rates rather than the 0.25% the Reserve Bank fixed on yesterday:
The RBA has been pushing on a string, to quote JM Keynes, for five years – the longest and most ineffective period of monetary tightening in history.
It has been ineffective partly because it has been so slow and gradual, and that’s partly why many are now predicting a double-banger – with the second either in December or February – to give the process some bite.
Labor have been relatively successful, in pursuit of their argument that it’s not risky to change horses in mid-prosperity-stream, in convincing the public that government policy has only some influence on economic conditions. That’s the explanation both of why they can be lower in the polls on “economic management” and why Newspoll is showing a fair number of people not holding John Howard to account for the six rate rises since his notorious promise in 2004. Like a lot of what is being pressed into service to craft rhetorical lines on the economy this campaign season, it’s a partial truth. There are many factors in a globalised economy which can affect interest rates, and contrary to Peter Costello’s imagining that banks lend solely on the basis of deposits, the government are finding that some of those factors can lead to the actual mortgage rate rising independently of or higher than the cash rate that the Reserve sets. Conversely, as I’ve been pointing out in my commentary here throughout the campaign, there are steps the government could have taken in fiscal policy to moderate inflation pressures. The fetishisation of a surplus of 1% of GDP really makes little sense economically.
It will be interesting to see if Kevin Rudd flicks the switch to caution over the next fortnight and stops matching the Coalition’s spend on promises. It would be a powerful way of rebutting “me too-ism” and reinforcing Labor’s point about responsibility for rate rises.
Because we’re entering unknown territory – with a rate rise in the middle of the campaign and the prospect of another one in quick succession – no one really can say with certainty how this will play politically. Whether or not the Coalition have been confused in their desparation, or throwing out lines to see how focus groups will react, they have found it hard to settle on a narrative that will reassure voters on one hand, and frighten them about the Labor alternative on the other.
As Christian Kerr writes in Crikey:
We now have an interest rate rise. Barring something like a terrorist outrage, we now also have the parameters of debate for the remaining two weeks of the campaign – the final weeks when we will crystallise our choice.
But there are still holes in their story. As Kim Jameson at Larvatus Prodeo asks:
If the “team” are so experienced in managing an economy through “difficult times”, why are interest rates going up? If it’s beyond their control, where’s the “economic management”?
It’s a difficult juggling act to convince voters that because you’re doing so well, things are going bad, because you can’t help that happening. Because it calls into question both the claim that the other mob would be worse, and the claim that you’re actually doing something at all.
And then, there’s the contradiction of claiming virtue on the basis that by containing wages, you’ll contain inflation, particularly when Joe Hockey won’t release the government’s own research that models the impact of WorkChoices on wages growth, because it might frighten the punters.
And further, it’s hard to say you’re sorry and at the same time say it’s not your fault, though that’s what the PM has been saying this morning. The risk, of course, is that all the voters will hear is the apology, which implies an admission of blame.
There’s another furphy lurking in all the political debate on the effect of interest rates. It’s often implicitly assumed that the only voters who’ll punish (or reward if you buy the risk line) the government are those with mortgages and modest incomes. It’s now clearer that renters suffer as well, but consider also that so many of us are groaning under the weight of credit card and other loan debt. It’s not just to buy plasma tvs. For the large portion of the population, a portion that’s particularly large among younger voters, who don’t enjoy the fruits of permanent full time work, credit is a necessity to smooth over the peaks and troughs of an irregular income that results from reliance on casual, contract or limited term employment.
And then there’s the impact of all this on “trust”. That’s what Kevin Rudd is hammering John Howard on. That’s something that everyone, no matter their financial circumstances, can be appealed to.
While there’s a small chance that the rate rise will be a “positive” for the Coalition, as Blair MP Cameron Thompson so unwisely said yesterday, it’s just that. Labor should have a clear run to the finishing line on the basis of a clear and coherent narrative about inflation and rates and housing and bills stress. And trust.
In truth, John Howard has made a cross for himself to bear. He should have called the election much earlier. But, then, he didn’t do so because he couldn’t figure out a way to win.