Interest rates

John Quiggin12 Comments

Another silly feature of the election campaign is Howard’s claim to have delivered low interest rates (and, by implication more affordable housing). The variable home mortgage rate has barely moved over the eight years from 1996 to 2004, and (IIRC) it was lower in 1996 than when Howard handed over the Treasury in 1983.

It’s true of course that in between those dates, interest rates rose to stupendous levels, as high as 17 per cent. But to the extent that Labor made this mess, Labor cleaned it up. Howard had nothing to do with it (moreover, throughout Labor’s term in office, both Howard and Hewson were consistent monetary policy hawks),

This experience also showed that the link between budget deficits and interest rates (via crowding out) is not all that strong. It’s true that, if you move from large surpluses to chronic deficits, as Bush has done, you can expect an eventual interest rate response (though no such response has appeared as yet). But improving the budget balance by a few billion dollars will have no visible effect.

So, I’m disappointed to see Latham running with the government line and promising to keep interest rates low through fiscal policy. Given that world interest rates are likely to rise over the next few years, thanks to chronic deficits in the US, it’s doubtful he can deliver on this. And while it’s good to maintain surpluses on the cash balance over the course of the economic cycle, it’s silly to promise a surplus every year.

Sheridan on the Greens

John Quiggin48 Comments

The bizarre campaign of distortion against the Greens continues with an extraordinary piece by Greg Sheridan, though one that is something of an embarrassing reminder of Sheridan’s long-standing support for the Suharto military dictatorship and its occupation of East Timor.

As with previous pieces in this genre, the modus operandi is to misquote Greens policy, take an extreme interpretation of the misquote and run with the resulting scare. There’s only a marginal difference between Sheridan’s treatment and the full-blown black helicopter fantasies being peddled by Steve Edwards.

Sheridan’s first point of criticism reads

For example, they assert that Australia should force the Indonesian Government to bring all “war criminals in its ranks” to justice by withholding military co-operation, which wildly overestimates the importance of Australian military co-operation to Indonesia.

The actual policy reads

using (along with other governments) continued military cooperation with the Indonesian military as a bargaining counter to convince the Indonesian Government to bring all war criminals in its ranks to justice before an international tribunal instead of trying them before the Indonesian-controlled Jakarta Human Rights Court.

There’s certainly room for argument as to whether Indonesia can be convinced, but it’s clear that Sheridan has misrepresented a policy that most Australians would endorse. The Greens aren’t asserting that Indonesia can be forced to act at Australia’s behest, as Sheridan claims. The rest of the article is no better – for example, a policy on Israel-Palestine is criticised because, while condemning suicide bombings, it doesn’t specifically use the word ‘terrorism’.

The Oz editorial picks up the same line and the Fin has another, rather rambling. piece from Gary Johns.

I’m still puzzled by the politics of all this. Commenters have suggested that it’s aimed at the Greens’ Senate vote, but that would mainly help Labor. Besides, devoting the opening days of a tight election campaign to a strategy aimed at marginal improvements in the Senate outcome seems misguided.

It still seems to me that the results of all this will be, first, to reduce the flow of Green preferences to the Liberals and, second, to benefit Labor at the direct expense of the Liberals. After all, there are only so many buckets you can tip in an election, even with a long campaign. By the time Sheridan and others get around to attacking Labor, a lot of people will already have tuned out.

Update: More on this from my blogtwin , Tim Dunlop

Rodents

John Quiggin9 Comments

It would be an exaggeration to say that I am living in a safe Liberal electorate. At the height of Labor’s rising tide in 2001, Labor’s Leonie Short won Ryan in a byelection, losing it again in the general election. And the state seat of Indooroopilly is, amazingly enough held by Labor. Still short of the kind of wipeout that would see most members of the government lose their seats, the incumbent MP, Michael Johnson, is safe enough. As a result, I don’t expect too much media attention for Ryan in this campaign.

So, this will probably be the only occasion on which Ryan makes the news. The claim that George Brandis described the PM as a ‘lying rodent'[1] came from a disappointed preselection candidate for the state seat of Moggill (part of Ryan, I think) and close ally of Johnson, Russell Galt. Al Bundy has the gory details, in a piece designed to discredit Galt but which makes an even stronger case against Johnson. If I had access to the Howard spam machine, I would circulate it throughout the electorate.

fn1. I have no idea whether Brandis actually said this, but Galt has certainly captured Brandis’s turn of phrase. The actual description is, of course, false – the PM is clearly a primate (thanks to reader Nabokov for fixing an error here; I had ‘reptile’ in mind, and put ‘mammal’ as the correct category).

More shonky science

John Quiggin12 Comments

Over at Crooked Timber, Daniel Davies demolishes the latest effort by junk science writer Steve Milloy (on diet and diabetes), and admonishes Todd Zywicki of the Volokh Conspiracy for giving uncritical credence to Milloy, who has a track record of bogus work going back at least a decade, to his work for the tobacco companies, trying to cast doubt on the link between smoking and lung cancer. Of course, this track record doesn’t eliminate the need to demolish Milloy afresh each time he pops up. Still if the name didn’t ring alarm bells for Zywicki as soon as he saw it, it’s clear he hasn’t been paying attention.

Devaluation of scientific work in favor of partisan hacks like Milloy has become standard practice on the political right and is a significant subtext in the current campaign against the Greens. Many of those making these attacks are drawing their talking points from the Institute of Public Affairs, a body which has supported global warming contrarianism, denied the link between passive smoking and cancer, and attacked scientists working on the Murray-Darling basin as “environmental activists masquerading as scientists”. It’s pretty clear who the wackos are in this debate.
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Howard vs Brown

John Quiggin57 Comments

I must say I’m mystified by the Liberals’ decision to open the election campaign with a series of broadsides against the Greens, the typical tone of which is given by a media statement from John Anderson entitled “Don’t Trust Your Vote with Wacky Greens”. A large part of the campaign seems to be an attempt to claim that the Greens’ policies on issues other than the environment are those of the “loony left” – economic radicalism, free drugs for kids, forcing people to ride bicycles and so on.

The first problem with this claim is that it’s nonsense, based on silly distortions that won’t stand up to even momentary scrutiny.
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Sistani rules, Ok (Part 5)

John Quiggin5 Comments

After summarising the generally gloomy prospects for IraqPaul Krugman writes in today’s NYT

much of U.S. policy in Iraq – delaying elections, trying to come up with a formula that blocks simple majority rule, trying to install first Mr. Chalabi, then Mr. Allawi, as strongman – can be seen as a persistent effort to avoid giving Grand Ayatollah Ali al-Sistani his natural dominant role. But recent events in Najaf have demonstrated both the cleric’s awesome influence and the limits of American power. Isn’t it time to realize that we could do a lot worse than Mr. Sistani, and give him pretty much whatever he wants?

He’s right, but it’s important to look ahead to the next step. Sistani has rejected violent resistance to the American occupation, but has always opposed the occupation and has refused to meet with the Americans or their representatives. Assuming elections go ahead and a Shia majority government is elected, it will be under intense pressure to demand the withdrawal of US troops, regardless of the security situation.

Among the possible responses to this, the really stupid one (and therefore the one the Bush Administration will probably pick, if Bush is re-elected) would be to invoke Article 59 of the Transitional Administrative Law approved by the unelected Iraqi Governing Council, which allows for US troops to remain in effective control of the country until a permanent constitution is in place.

A more plausible solution, but one that would probably be unacceptable even to a Kerry Administration, would be to hand over command of a scaled down (but still mostly American) force to a UN commander, operating subject to the control of the elected government. The Iraqi government would probably accept such a compromise.

The final option would be to pull out as requested, and leave the Iraqis to sort out the resulting mess. It’s looking increasingly likely that this will be the actual outcome, and perhaps it would be better than what we have at present.

A big goods and services deficit

John Quiggin12 Comments

The seasonally adjusted balance of trade in goods and services came in a deficit of $2.7 billion. If continued at an annual rate, this would amount to about 4 per cent of GDP, implying a current account deficit in excess of 67 per cent.

There’s plenty of debate about whether large current account deficits can be sustained indefinitely. But there isn’t (or shouldn’t be) any such debate about large deficits in the goods and services balance. A large and stable deficit on goods and services necessarily leads to an explosion in net debt and in the current account deficit[1]. This can’t be sustained, and therefore won’t be, but the process of adjustment may not be pleasant.

As various people have pointed out, one contributory factor is the poor performance of the “elaborately transformed manufactures” sector, on which high hopes were set in the early 1990s. More generally, it’s difficult to square this outcome with claims of a miraculous productivity performance in Australia.

I don’t suppose that this will have much impact on the election campaign. But it helps to point up the fact that the government’s reputation as good economic managers is as much the product of good luck as of good judgement. Running sustained large current account deficits is a gamble that world capital markets will continue to take the relaxed view of such deficits that they have in the last decade as regards OECD countries, rather than suddenly changing their minds as they have done in relation to Mexico, Asian countries. Argentina etc.

fn1. If the rate of growth of nominal GDP is higher than the rate of return received by foreign lenders and investors, a small deficit on goods and services can be consistent with a stable ratio of debt to GDP. But that isn’t the case for Australia. The ten-year government bond rate is 6.25 per cent, which is about equal to nominal growth, and private borrowers would mostly be paying rates higher than this.

One Cheer for John Howard (guest post from Jack Strocchi)

John Quiggin35 Comments

Following up Brian Bahnisch’s guest post, I’m presenting another from Jack Strocchi. It should be obvious that I don’t agree with Jack’s view of Howard as a Straussian/Machiavellian, telling “Noble Lies” to lead us all to his vision of tolerance. But I’ll leave it to others to make up their own minds.

I found the discussion of Brian’s post very interesting. Jason Soon has some more thoughts, with which I broadly agree, though I’d concede that excessively narrow utilitarianism can lead to the kinds of moral blindness pointed to by Brian.
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Two beatups

John Quiggin19 Comments

Tonight’s election news had both parties engaging in dreadful beatups. The Libs tried to turn a Labor policy of a 0.1 per cent addition to the Superannuation Guarantee Levy into “a new national payroll tax’. This is so bogus I can’t imagine it lasting past tomorrow.

Meanwhile Labor plugged away on the line that Costello will replace Howard sometime in the next term of office, and that Howard is being dishonest by not admitting this. Of course, this will probably happen, but it might not. Having predicted before the 2001 election that Howard would not serve a full term, I’m not going to make any predictions or demand any promises on this one. If you vote Liberal, you might get Howard, you might get Costello, you might get someone else. I suppose it’s unlikely that Labor would dump Latham in his first term if he won, but give him a couple of terms in office and the same question will arise.