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ALP: economic creditionals « Previous | |Next »
November 16, 2004

A key reason advanced for Labor's loss at the recent federal election was its failure to address its economic credibility in the electorate, in spite of its attempt to balance its outer-suburban aspirationals and the professional urbanites constituencies.

In the Weekend Financial Review there is a good article by Brian Toohey (subscription required) entitled, 'ALP must admit Keating errors.' It is a response to the ALP's post election promise that it would improve its economic creditionals in the post 2004 period. Toohey says:

"Labor won't get very far until it stops whingeing about Howard's dishonest campaign and confronts the reality that Keating made disastrous mistakes on monetary policy.These mistakes should be distinquished from the structural reforms during the Hawke-Keating era which Labor can rightly claim helped improve flexibility in the economy and allowed interest rates and unemployment to fall under the coalition."

The current ALP has really failed to lay claim to that legacy. That has suprised me.

So what were Keating's mistakes on monetary policy, which continue to haunt the ALP like ghosts from the past? Toohey is on the mark:

"It was Keating who claimed to have the Reserve Bank in his pocket, when it came to monetary policy. With his hands on the levers, Keating was much too slow to raise interest rates in response to the mad excesses of the late-1980s boom and then much too slow to cut them."

That is the legacy that haunts the ALP. It is certainly one that I am very aware
of. I lived through that horror period trying desperately to hang onto my innercity cottage. It was the aftermath of a boom fuelled by a frenzy of bank lending following financial deregulation and a property price bubble. Keating never really apologized for the pain and suffering he caused by failing to deflate the property bubble. And I never forgave Keating for that.

So what needs to be done by the ALP in the present? As you would expect Toohey has a number of suggestions.The ALP has to do more than candidly admit it got it wrong on interest rates when last in government. Toohey suggests three things.

The ALP needs to develop an economic policy that moves beyond the defensive policy of running a budget surplus in any circumstances. It needs to avoid confusing economic reform with the changes advocated by big business. And it needs to adopt a more pro-competition policy than the government and to trump the government claims in wanting a more entrepreneurial market culture. Suprisingly Toohey says nothing about welfare-to-work reform.

However, his suggestions do indicate a way that the ALP could pick up and continue the legacy of the structural reforms of the Hawke-Keating era. But it requires political courage to do this.

| Posted by Gary Sauer-Thompson at 2:20 PM | | Comments (1)


If we really take a look at election results over a period of time we can see that the electorate does not change the government if it perceives that the economy is going okay. It is only when the economy goes bad that the government of the day is tossed out(whether liberal or labour) Surely right now
9in a liberal era) we are in a time of "frenzied bank lending" and property price ballooning. My guess is that we are headed for another "horror period" which will lead to a change of government at the next election.Interest rates etc usually have little to do with the government of the day. Both labour and liberal have overseen booms and busts. I think it is time that we went beyond the surface of things and tried to find out just why it is that both labour and liberal cannot halt interest rate hikes without causing disasterous property booms.