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Hockey's economic message « Previous | |Next »
February 18, 2009

In the context of the collapse of Wall Street and the subsequent global recession, Joe Hockey, the new shadow Treasurer, stands firm in defence of the free market at a time when General Motors told the US federal government on Tuesday that it needed to increase its loan request to $30 billion, $12 billion more than it had initially sought, to avoid a bankruptcy filing and Japan's export engine stalled due to its dependence on the US.

Hockey's message is simple. It is to let global financial flows flow:

We believe in free enterprise. We believe that if the market can fix it, that is the starting point with an appropriate safety net.There will be market failures but the challenge is not to overreact with more regulations which end up placing handcuffs on capitalism. The market has made everyday Australians richer than they have ever been -- even with this economic downturn.

An economic downturn? Isn't the main point about the collapse of Wall Street that the market could not fix it? Wall Street had to be, and continues to be, bailed out. Obviously, Hockey is just a bit lax on the detail of what has happened. The market is not working. Hence the government bailouts for Wall Street and the auto companies. For Hockey bailing out firms--ie., placing them on life support--- is placing "handcuffs on capitalism!

Hockey's other economic message is that the Rudd Government is being panicked by the global recession into wanting to stifle business with needless over-regulation, and that it is deliberately slowing down the Australian economy. This is music to The Australian's ears, even though it requires big subsidies to print the Australian Literary Review. I would have thought that the Australian economy was in recession due to the decreased demand for Australian goods and raw materials as a result of the Chinese and Japanese economies taking savage hits. The subsequent collapse in growth and consumer demand, not increased regulation, means that small businesses are set to hit the wall this year.

Hockey also overlooks the global pressures on the banks in the US and the UK, whose collapse indicates the need for full-scale nationalisation. Despite the bailouts the banks are failing to resume lending to businesses and the so-called masters of the universe have no idea what to do.

By nationalisation is meant some kind of a global debt for equity swap---socialising the losses---and then slowly selling all the government controlled assets back into the private market in the future at a profit. Hockey fails to say what he would do when faced with this kind of market failure. He gives little indication that he even understands it.

| Posted by Gary Sauer-Thompson at 5:36 AM | | Comments (14)


They'll be talking about creationism next and then adding that the issue is not a scientific one, but a moral, cultural and political one.Those on the far Right of the Coalition will mutter that Darwinism made possible eugenics, Nazism, communist materialism.

Regardless of what they are saying Turnbull and Hockey are better media players than Rudd and Swan.

Gillard is the key to Labor success now.

Hockey has an economic message?

The Liberal Party has a regular solar eclipse as the heavenly body of Peter Costello sails past and blots out their sunlight.

What does he think he's doing?

The market is working. The lack of demand for badly designed cars means a deepening slump in vehicle sales.So GM is running out of money, is planning to cut 47,000 out of a total of 244,000 around the world by the end of the year and is closing factories left, right and centre.

Hockey says let it happen--let GM and Chrysler go bankrupt.

The private sector has virtually withdrawn from the market. The Banks are not lending. No one knows the extent of the toxic assets of the US banks and financial firms. Estimates range from US$2.2 trillion to US$3.2 trillion and the suspicion is that they are insolvent.

So Australia is faced with a shortage of foreign private capital to refinance company debt and they are slashing their budgets. Unemployment rises, demand falls and the recession deepens.

Let the market do its thing says Hockey. We stand for free enterprise.

I don’t think the opposition’s objection to the govt’s stimulus spending has anything to do with ideology. It’s the norm for oppositions to oppose govt spending especially when it’s financed by asset sales or debt as the money is usually used to for govt pork barrelling and shoring up its political base. Recall how Labour where equally opposed to the Telstra sale. The Liberals used a portion of it to pay down debt however a large part of it when into pork barrelling in country electorates. Had Keating won the 1996 election it would have been flogged off at a moments notice. After all, in the past 25 ‘neoliberal’ years, federal and state Labour has probably transferred more public assets into private hands than the Liberals. $42 billion is just the type of money that can boost govt popularity especially when it’s part dished out to the plebs as cheques in the mail like federal Labour has chosen to do this time around. Incidentally the Liberal opposition in NSW opposed the Iemma govts sale of NSW electricity for the same reason, even though their corporate backers were all for it.
Xenophon was keen to do a ‘Harradine’ and siphon off a larger portion of the $42 billion for SA. He risked becoming the most hated man in politics next to Turnbull for holding up the cheques.

On the subject of the global recession, the following article provides an interesting take on the causes of the near collapse of the US led world financial system.
It makes reference to the term ‘negative feedback loop’. Of course, govt stimulus spending is aimed at breaking the negative feedback loop in terms of an economy’s spiral into an ever deepening recession and its consequences for country’s financial system. The Australian and NZ political elite adopted the US and UK neoliberal project with much gusto (public asset sales, easy and cheap credit, asset bubbles, millions of jobs sent off shore) however our economy and financial system has not yet crashed like those of the US and UK. Local banks have reported increased consumer and corporate bad debt levels, but not at levels which threaten their viability. The problem with this assessment is that we’re only at the beginning of the economic downturn. The Aust banks have successfully weathered the global credit crunch however they must now negotiate a potentially sharp economic downturn when Australian mortgage, consumer and corporate debts levels are at their highest levels ever as a % of GDP. In the UK, the govt has had to pump more public money into the banking sector as debt defaults have soared due to the negative feedback loop of lower business spending, higher unemployment, asset deflation and tighter credit. In Aust the Reserve bank like other central banks has been lowering interest rates to reduce the country’s debt burden. This is good for debtors but not for savers. In the UK, after tax returns on savings are now

The US car companies can only stay afloat in an industry sinking in overcapacity, weak demand and outdated strategies with a government bailout. Without the bailout they go bankrupt, as they are not able to earn enough money from car sales to reduce their debt.

Peter S Stock is half right. However, it’s an externally imposed condition that has caused this rapid change in consumer behaviour. If it wasn’t for the GFC, people would still have the money to spend on gas guzzling vehicles. In a way, it’s a good opportunity to kick-start the development of more efficient transport. Heaven forbid this may spill over into pursuing more efficient and less wasteful ways of life. This may even prevent a war or two over oil!

If Hockey truly believed in capitalism (i.e. the economic theory) he would be saying that the GFC is a massive correction, that companies that go under should be allowed to do so and that those who ‘adapt’ best will eventually be successful. Of course, he would never say that. After all, arguably the biggest enemies of capitalism are ‘capitalists’ – and they fund the Liberal Party.

maybe in response re your comment that:

the opposition’s objection to the govt’s stimulus spending has anything to do with ideology. It’s the norm for oppositions to oppose govt spending especially when it’s financed by asset sales or debt as the money is usually used to for govt pork barrelling and shoring up its political base.

However, the Liberals do seem to have a thing about the level of debt. The implication is that government should not go into debt. It's fiscal profligacy and the burdening of future generations of Australians with huge amounts of debt is their reason. The hope is that Turnbull’s stance will resonate with a debt-conscious Australian public.

In the Spectator Australia Ross Fitzgerald refers to the Liberals stand against Rudd. He says:

there is a growing perception that the PM is handing out chunks of money for nothing. At the very least, this gives young Australians the very misleading message that in 2009 a select few can be in receipt of cash without any sense of reciprocity and responsibility.

Hence it is not surprising that a significant number of thoughtful citizens are wondering out loud whether it is really such a good idea to distribute such large financial handouts without any corresponding effort on the recipients’ part.

It's the standard conservative line.

After watching Q and A last night I suspect it's a bit much to expect coherence, ideological or not, from Hockey. Tax cuts one minute, Snowy schemes the next. Then a carbon tax because he's a climate change convert.

He outperforms Swan but is erratic in print.

We now know that a fair chunk of the handouts will go to paying off debt if the last round was any indication, which suggests that people share Steve's view - that there's a lot worse to come. At that rate you would think they'd be more concerned with what is actually going to happen, as opposed to what the opposition would do if it were possible.

Milne was right. This mess is an opportunity to rethink the way we do everything, and to get people enthused about a longer term vision. What things might look like after the inevitable has passed, rather than quibbling over what has demonstrably failed.

There is not much depth in the Spectator Australia The editorial---- The Easy Folly of Debt says:

Despite the shrill rhetoric, Australia is not in economic crisis. Moreover, both history and intuition make a poor case for massive government borrowing in the face of a natural economic downturn.

A natural economic downtown? Who are they trying to kid? And this is Tom Switzer's account:
Rudd now sells his spending spree as the only way to protect Australia from the global downturn. But Costello has been the most effective critic of cash hand-outs and giveaways to Labor pet projects instead of tax cuts and investment on economic infrastructure. If the economy fails to recover in 12 months’ time, Costello will be able to say: ‘I told you so.’

That conveniently ignores Rudd Government's third stage of stimulus---big infrastructure investment through Infrastructure Australia.

The normal workings of the market is this. As a coal exporter, Queensland is the state economy most exposed to Australia's biggest export market. Queensland's budget update suggests the Japanese contract renegotiations to apply from April could cut coking coal and thermal coal prices by 40-50per cent. Japan's recession will further cut the amount of coal it buys from Queensland. And that will crunch Queensland's coal royalties from $3.2 billion this year to an estimated $1.7 billion next year; job losses in the coming financial year and a growth rate close to zero.

Don't you know there is, to use a phrase beloved of Margaret Thatcher, no alternative to free markets.

If that causes you to raise your eyebrow, the response is that, if there is, it hasn't been revealed.