I’m currently working on the long term debt numbers that the RBA provided in a recent speech by Ric Battellino. Will have a revised post up sometime this week.

Myth 1: The economy requires careful management that only they can deliver
Reply: How much of the Australian economy does the government really control? Really, how much ‘management’ are the government really doing? Since Australia is a free-market economy, not a communist command-economy, the idea that the government ‘manage’ the economy is humbug. That is the WHOLE POINT of having a free-market economy is to let market forces steer the economy.

Myth 2: Under Labor, interest rates would be higher than under Coalition.
Reply: Although it is true that under the previous Labor government, interest rates was high (18%+ was the figure right?). But people do not understand that during that period of time, global interest rates was high too. For example, Singapore’s interest rates was higher than 20% at that time. Paul Vocker, head of the US Federal Reserve had to raise interest rates at that time to rein in price inflation. Australia was merely following the tide of high global interest rates. Likewise, during the low interest years under the Howard government, global interest rates was low (US was 1%, Japan was 0%). Australia’s interest rates (4.75%) was among the highest in the world. The key point is that global interest rate trends had nothing to do with Howard’s economic management!

Myth 3: Coalition government can keep interest rates low
Reply: This myth is already busted.

I remember that in an ABC interview just before the previous interest rates rise, Peter Costello was confident in predicting that price inflation will turn out to be benign and that there wouldn’t be any interest rates rise. It turns out that he was COMPLETELY WRONG. Price inflation figures was bad and interest rates rose. Either he is a complete moron or he was just sprouting out propaganda to soothe the ears of the electorate.

The Coalition government is behaving like Baghdad’s Comical Ali. The scary thing is that no one cares or takes notice.

Thanks for your response.

(Firstly, my apologies for spelling mistakes above, including misspelling ‘polls’ as ‘possl’)

Firstly, having a re-elected Howard being made to bear responsibility for the consequences of its economic mismanagement, instead of a Rudd government, would be very poor consolation for having Howard returned, particularly for workers who stand to have their wages massively cut in the recession.

If a returned Rudd government is blamed for problems not of its making by the media and by the Liberal opposition, then that argument has to be faced as best as we are able.

Notwithstanding the fact that your principle concern is not about which party governs, I think it needs to be acknowledged that the uncritical acceptance of the myth of the superior economic credentials of Howard and Costello is undermining our democracy in an insidious way.

This myth has repeatedly trumped many gravely serious serious objections to the rule of Howard, including the Iraq war, the AWB scandal, global warming, privatisation, civil rights, free speech, population growth, the use of taxpayer funds to pay for saturation-level Liberal Party propaganda on TV radio, newspapers and post to the tune of a staggering AU$800 million to AU$1billion in the current term of this Government alone. If this is not changed soon, then I seriously fear for the future of democracy in this country.
By focussing almost exclusively on the economy at election times - at least where there are no security and terrorist-related scares to play up - the newsmedia attempts to convince voters to think only about their own immediate selfish interests (and even at that still misleads many into voting against their own best interests).

Nevertheless, the battle over Howard’s alleged economic performance is one which can be fought and one that should be winnable as Steve has shown.

This is not to say that Rudd doees not deserve severe criticism, particularly for his acceptance of much of the same the neoliberal agenda which drives Howard.

However, a government with Howard’s record does not deserve to rule waht ver can rightly be said of the alternative. If they are returned to office after what they have done, then it seems that their will be almost no limit as to how low governments can stoop and still get away with it.

This issue is what inspired me to start Debtwatch in the first place–after I was really exposed to the debt numbers for Australia, which in household debt terms were far worse than those of the USA (which I had until then followed more closely).

It was obvious that the apparent economic prosperity in this country had not one foundation (China) but two–the other being an enormous increase in household debt. The latter was the main source of the apparent good times, but anyone can look prosperous while spending borrowed money.

The odds of a debt-induced downturn occurring in the very near future–regardless of who was in power in Canberra–is what made me see it as my responsibility to bring this level of debt to public attention.

All of the customarily cited indicators you mention are largely by-products of the up-phase of borrowing. Aggregate demand in the economy is the sum of GDP plus the increase in debt. The latter factor now accounts for almost 20% of aggregate demand–a A$1 trillion GDP buttressed by a A$200 billion increase in debt last year.

Since the servicing costs are now clearly becoming unsustainable for the household sector, and the credit crunch has started in the USA so that lenders in general will stop lending in any event, at some stage in the new future, that increase in debt will “at best” fall, and “at worst” turn negative. That will cause a fall in aggregate demand somewhere in the range from zero to A$200+ billion. That will cause a recession (the only factor that can attenuate it is a continuance and acceleration of the China export boom).

What are the odds that, if that occurs under a Rudd Government, whoever heads the Liberals will blame the recession on the abolition of Work Choices? I’d say 100 percent.

If instead there is a Liberal victory, then I think the question of whether they are good economic managers or not will come into sharper, and more critical focus. But however their track record might be reassessed in that event, the important thing is that they should address the causes of the recession properly.

Here I am more worried about my own profession than I am about which party is in power. Economists in general will oppose most of the policies that might attenuate the pain, and put in place institutional reforms that prevent another debt bubble from developing again.

What I need to understand is:

1. how the newsmedia and the Government get away with incessantly repeating that the Howard and Costello are brilliant economic managers,

2. how many detractors of the Government accept and, on occasons, even promote that view,

The latter fact possibly explains in part why the Goverement can hav low approval in the possl but still be rated by most people as good economc managers.

The problem with this situation is that as the election draws near, this can cause popular oppostion to Howrd to unravel, as more people, seemingly even some who have suffered at Howard’s hands become convinced that they could actually fare worse under an alternative government.

This is what appears to have happened in 2004.

This concern has caused me to write the article “Living standards and our material prosperity” in case this my be of interest to anyone.

Can you say if you think there is any substance whatsoever in the view that Howard and Costello are brilliant economic managers, that is disregarding questions of social equity and their policies which are accelerating local and global environenmental destruction (bearing in mind that no economy can function without an environment)?

To what extent does their tediously repetitively cited achievements of low inflation, low (but no longer quite so low) interest rates, high employment (where to be ‘employed’ you need only work one hour per week), growth in real wages (which I largely question in the abovementioned article anyway) compensate for the debt problem you have described?

My own gut feeling is that Howard and Costello are, in fact monumentally incompetent at even that level and the fact that (even with media bias problems) Howard opponents have not brought that message to bear represents a serious failure on thier part.

Kind regards

Allan