Thursday, February 5, 2009

Why is Rudd's essay like toxic debt?

When Jim asked me what I thought of Kevin Rudd’s lengthy essay on the global financial crisis (published in the February 2009 issue of “The Monthly”) I said it was like a CDO. He said: “I agree. Its just a heap of garbage.”

I replied: “No, that’s not what I meant. What Rudd has done in writing this essay is like constructing a CDO. He has taken some reasonable stuff, combined it with some garbage and then dressed it up to look like gold. No-one knows what it is worth.”

Jim interrupted: “We have to pay $7.95 to get a copy. How is that for unrestrained capitalism? We actually have to pay to read the views of our prime minister.”

I ignored Jim’s comment. I continued: “The problem is that I can’t work out whether he is full of crap or just pretending. For example, if we can believe that his praise for the Hawke-Keating governments’ economic liberalisation is sincere, then we can be reasonably confident that his attack on what he describes as “the great neo-liberal experiment” is just a political labelling exercise designed to make Australia’s former government and current opposition look responsible for the world financial crisis. If we can believe that then we don’t have too much to worry about. But what if Janet Albrechtsen is right? What if Rudd’s claim to be a fiscal conservative before the last election was just a charade? What if his social democratic dream all along was to engage in an orgiastic spending spree on borrowed money?” (This is a reference to Janet Albrechtsen’s article ‘PM dumps facade for his ideological dream’, in “The Australian”, 4 February 2009.)

Jim looked puzzled. He said: “I thought the writing was on the wall before the 2007 election that Kevin’07 was no Paul Keating. Did you think his anti-market rhetoric at the time was just labelling? Can you imagine Rudd ever coming clean with the public, like Keating did before the recession in the early 1990s, and telling them that the Australian government can’t spend its way out of a world recession?”

I said: “I thought Rudd’s stuff before the election about not having to choose between Brezhnev and Hayek was just differentiating his product from John Howard’s. I didn’t like his misrepresentation of Hayek, but I thought Rudd was just a kinder and younger version of John Howard.”

Jim replied: “Well, the proof of the pudding is in the eating. What do you think of Rudd’s latest package of spending measures?”

I picked up my copy of this morning’s Financial Review and said: “I can’t say it any better than this.” I pointed to the following passage in an article by Mark Latham, former leader of the Labor Party:
“In an open economy, Keynesian pump-priming drives down national savings and increases reliance on costly forms of foreign debt. It is a Band-Aid policy that does nothing to enhance long-term demand conditions and productive capacity. Its lasting legacy for Australia will be a return to deficit budgeting, government indebtedness and tax increases to pay for the spending spree” (Australian Financial Review, 5 Feb. ‘09).

After he had finished reading Jim said: “Yeah, Latham had his problems, but if we had to have a Labor government – and couldn’t have Keating as leader – then I would feel a lot more confident about Australia’s economic future if we now had Latham at the helm instead of Rudd.”

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