Yesterday I came up with a graph that looked at the quarterly growths in GDP across a range of major economies. I couldn’t be buggered doing a graph for annual changes in GDP, but thankfully Peter Martin has done it for me! It’s a graph that is pretty sobering to look at:
It doesn’t take a genius to see that Australia has done pretty bloody well over the last 12 months compared to the rest of the world, and it also shows just how bad things are in the rest of the world. Look where Japan – our biggest trade partner – is located. Imagine life in the UK right now. If you’re wondering why Obama’s satisfaction ratings are going down, a look at the negative GDP growth in the US in the last 12 months will give you some indication (even though he can hardly be blamed given the God awful mess he inherited).
But Australia? It’s the little nation that could.
Why do you think we are where we are? Magic?
No. It is because interest rates are at break-the-glass-we-have-an-emergency level, and because back in October 2008, when the rest of the world was about to plunge off the economic cliff, the Rudd Government went into economic stimulus overdrive.
The GDP growth was consumer led. As Martin writes:
Driving the rebound was an 0.8 per cent bounce in household consumption in the quarter, built around a 2.5 per cent splurge in spending on clothes and shoes and a 1.9 per cent binge in spending on furniture and household equipment.
Business investment in equipment jumped 5.6 per cent, spurred by generous depreciation allowances in the May Budget.
Now here’s the thing; yes we’re in the positive for GDP growth, but still well below what you would consider average growth – unless you think 0.6% annual growth is good (in which case I just hope you’re not my superannuation fund manager). Take away the stimulus now and do you seriously think that pathetic little growth will sustain itself? Really? Why? Have a look at all those other economies – you know our trading partners. Do they look like they’re gearing up to start buying heaps of our exports? Take away the stimulus and just what do you think will sustain GDP growth? Prayers and wishes?
And yet here’s Joe Hockey last night on Lateline:
JOE HOCKEY: … the problem is that all the money the Rudd Government has spent is leaving us with a burden that is going to impair our economic recovery over the next few years. We've now got seven years of deficits for what appears to be five minutes of economic downturn with one negative quarter and it's a massive price to pay for a new school hall.
LEIGH SALES: How far should the stimulus be wound back, then, in your view?
JOE HOCKEY: It should be wound back significantly.
LEIGH SALES: What does significantly mean?
JOE HOCKEY: When you actually look at the entire package that the Rudd Government rolled out from the Budget in 2008, they committed over $100 billion of new extra-spending initiatives over the forward estimates. Forty per cent of that money kicks in after the 1st of July next year. And Australians need to ask themselves: why will interest rates go up, why will interest rates go up whilst the Rudd Government is continuing to spend money?
I doubt I have every heard anything so dumb coming from a front bench politician not named Julie Bishop. Joe Hockey, who would have you believe is qualified to be Australia’s Treasurer, believes the reason interest rates will rise from 39 year lows is because of the stimulus. On that reckoning he therefore must think that interest rates should – all other things being equal – stay at 3%. Yep; despite the fact that the lowest interest rates ever under the 11 years of the Howard Government was 4.25%, Hockey now thinks a rate over 25 percent lower than that “record low” should be the norm.
A complete dill. I would love a journalist to ask either Hockey or Turnbull what they think is a non-stimulatory level of interest rate.
Today in Crikey, Bernard Keane wrote a brilliant piece that nailed this bull about winding back the stimulus for what it is:
The “debate” over whether the Government should pull back on the stimulus package is a classic case of a press gallery trying to frame a real-world issue into a narrow, political framework that suits its own reporting purposes. It is a collective illusion being foisted on the mainstream media’s ever-smaller audiences by journalists and commentators unable or unwilling to see outside the gallery prism of winners and losers and political personalities.
And it is a “debate” run entirely by the press gallery and the Federal Opposition. There are no — no — economists or business groups who think it is time for the stimulus to be wound back, except for those on the far right or Liberal shills such as Henry Ergas, who opposed the stimulus package in the first place.
Here’s Peter Anderson, head of the Australian Chamber of Commerce and Industry (easily the most anti-ALP business group going):
"Much of the growth has occurred in areas where the government's stimulus package has had a direct impact," Australian Chamber of Commerce and Industry chief Peter Anderson told reporters in Canberra.
"What that tells us is that there is still some underlying fragility in the Australian economy."
He said the economy would be tested to sustain levels of growth in coming quarters. "Whilst helpful to confidence, it cannot be a basis for any euphoria or any view in the Australian economy that we are out of the economic woods, we are not yet out of the economic woods."
That sounds very much like a man still damn worried about the fragility of the economy.
According to Joe Hockey and Malcolm Turnbull though such concerns are foolish. It’s all over, that war has been fought and now it’s time to criticise Rudd and Swan for how they fought it – you know that they used too much ammunition (which has me thinking that Hockey and Turnbull probably think soldiers on the front line worry more about if they’re shooting too many bullets rather than if they’re going to run out of ammunition).
Just as dopey has been the Canberra Press Gallery (as Keane notes). At yesterday’s press conference some fool actually asked Swan if he could guarantee that the Government wouldn’t borrow 1 cent of money it didn’t need.
Just amazing. Does that clown actually think there is a shop that Swan goes to and asks to buy a recovery from the Global recession?
Again using a war metaphor, it’s like asking a General to guarantee that he won’t fire one round of ammunition more than necessary to win the battle. Here’s a tip – the job of the General is to win the battle, and it’s the job of the treasury to keep us out of recession. Suggesting Rudd and Swan could have spent less means saying – well we got 0.6% growth, if we had spent a billion less would that mean we would have got 0.5% growth? Do they seriously think the economy is that easy to manoeuvre?
Running an economy is not (despite what Peter Costello would have you believe) like driving a sports car that requires just putting your foot on the perfectly calibrated accelerator or brake. An economy is not a Ferrari; it is sluggish, it doesn’t steer well, it is prone to sliding off the road; the accelerator and brake are sometimes touchy, other times resistant to pressure; the gears require double declutch; and while you’re doing all that, the windscreen has fogged up and the demister is on the fritz; and to top it off the steering wheel at times seems to have a wheel lock on and no one can find the keys.
In short an economy is a bugger of a thing to drive.
Asking questions about whether a billion or so less could have been spent is like a car journalist judging a Camry’s handling, acceleration and top speed compared to that of a Porsche.
It’s time to acknowledge that the economy handles like a pig but Swan and Rudd (and Treasury) seem to have (for now) worked out how to at least keep the thing on the road.