Monday, October 04, 2004

Most demoralising election campaign ever

The Australian election campaign has been the kind of election campaign that turns people off and makes them cynical about politics. Both sides have embraced the wedge and the pork barrel and both sides are relying on relentlessly negative campaign tactics. But special credit must be given to the Coalition for setting much of the tone -- Howard offering few reasons to vote for him, but endless reasons not to vote for the other guy.

Not being an economist myself, I'm well aware of my lack of qualifications to pontificate on the Coalition's interest rate scare campaign (although it's never stopped Some Guy With a Website throughout the ages.) But as a voter I'm being asked to make a judgement on the matter, and it's thus vital to analyse what's going on as best as I can from the perspective of a somewhat educated layman.

It seems the Coalition will never tire of citing the 17 percent interest rate peak under Labor in 1987. I must have heard this one in Parliament about 17 million times. Never mind that this is a peak, not a typical figure (Labor ruled, after all, for 13 years, and presided over an economic boom, a bust, and then a recovery.) It's also a measure of the absolute, not the real rate of interest, but let's not get into that.

Hence, this figure becomes the centerpiece in the Coalition campaign, which could be fairly described as the fear, uncertainty and doubt campaign. Howard evinces his faith that interest rates would always be higher under a Labor government. Note, he is not promising that Labor will raise interest rates and the Coalition won't -- since everyone believes that an interest rate rise will happen no matter who gets in, the RBA waiting only until after the election to make its move -- but rather, that at any given time, interest rates would be higher under a putative Labor government than under the Coalition.

We should note that this argument invokes counterfactuals and thus is unverifiable. But that also means that it's unfalsifiable. What matters the public perception, and so the Coalition has been hammering this point relentlessly, hoping to pound it into the skull of the electorate, becoming conventional wisdom by dint of sheer repetition. Thus, the soundbite: "Interest rates have passed 10 percent in every Labor government for the past 30 years!" Another ad cites appalling financial hardships such as 950 a month increases should interest rates rise "just five percent." The calculated impression is that, no sooner will Latham get in, will interest rates skyrocket to late-eighties levels simply due to bad Labor mojo.

Occasionally, Howard offers some actual intellectual justification for his stance that Latham would take the economy to interest rate wrack and ruin. Originally, he argued that Latham would go on an inflationary public spending spree, and argument somewhat neutered now that Howard's own re-election spending spree has vastly outmatched anything Labor has come up with. Now he's arguing that Labor's industrial relations policy is the achilles heel, which will lead to "inflationary wage rises."

These arguments have been rubbished by academic economists, as well as Bernie Fraser, the only RBA director to become a beloved pop cultural figure. The awful truth is that no government has any direct influence on interest rates, and every government inherits economic circumstances whose conditions have been layed down years, even decades beforehand. But no government wants to run on a platform being largely irrelevant to the short term prospects of the economy.

All this evinces a certain amount of chutzpah. After all the reason why there is so much public anxiety over the rather dry subject of interest rates is that everyone is leveraged up the whazoo thanks to an unprecedented housing rush that's inflated prices to extraordinary levels, accompanied by an unprecedented expansion in consumer and household debt. Howard presided over both of these; and while he's not to blame for originating these trends, he's certainly to blame for doing absolutely nothing to arrest them. So Howard's chutzpah is that, having done so much to bring working families to the precipice, he now scares them by telling them that Labor will be the one to push them over the edge.

The still-partially inflated housing bubble and the massive debt levels present in the economy (on all levels, from consumer to foreign) are what personally concerns me most about the economy and makes me believe the current relative prosperity is sitting on a throne of glass. But Labor has not run with this point. This is understandable. Telling the electorate that a somewhat severe economic downturn is inevitable no matter who gets in power is understandably a hard sell.