|
November 27, 2007
Booms become busts. How long will the boom continue? Or will inflation, arising from infrastructure constraints, work force shortages, tax cuts and high debt, ensure that the Reserve Bank squeezes the economy with ever higher interest rates. How long before that kind of squeeze makes it hard to breathe? An interest rate increase is still likely in the new year, no matter which Government is in power.
In Poisoned chalice for 'economic neophytes' Ross Gittins gives a warming about Australia's economic future. He says that Rudd:
...inherits an economy that, to every outward sign, is in good shape but, after a record expansion phase of more than 16 years, is overdue for a cyclical correction.So the chances of a recession occurring sometime during his reign are high — almost guaranteed. Worse, the chances of a recession in the next three years are high.Do you see what that would mean? Mr Howard and his treasurer would go down in the electorate's mind as the exemplary economic managers they always assured us they were. But Labor's reputation as bad economic managers would be burnt into the brains of a generation. Let the Laborites near an economy and the first thing they do is stuff it up.
Gittens says that though federal governments invariably get a second term as a matter of course should the recession occur during Mr Rudd's first term, it's easy to see him being dispatched at the first opportunity.That would be through no fault of his own. He would simply be a victim of the vagaries of the business cycle.
Gittens is not predicting that a recession is imminent, just that, by the law of averages, the next one can't be too far away. He is arguing that the ALP has taken charge at a point where most of the nice aspects of the boom have passed and we're on to the nasty bit. The danger is that the mishandling of booms has often precipitated a recession. caused by the Reserve overdoing the rate rises that stop the economy rather than just slowing it.
Does that mean the ALP's economic conservatism should involve making deeper cuts in spending than it foreshadowed in the campaign, and possibly delaying the fulfillment of some of its electoral promises to ensure a strong and prosperous economy? How does the ALP juggle equity and efficiency in toughened times? What room do they have to use the economic strength to restoring and increasing the fair go so that Australia has a competitive economy and a good society?
|
Gary,
Maybe. The Reserve has been patting itself on the back of late for good economic management. And yet the signs looks as if the squeeze has not been early enough or hard enough.
What does the AFR say about this? From memory they wanted the Coalition to win and are quite critical of Rudd ALP because it is anti-business. Do they point the finger at the RBA?