Sunday, September 16, 2007

Weekend musing – economics and elections

Those bloody time zones, no point having a Sunday musing when it’s always another day somewhere else… So we are going weekend which I will post on my Sunday. That is the first disclaimer, the second is that I simply wish I understood economics rather than claim I do.

There is no question among Australia’s major political parties the economics has an enormous influence on election outcomes. John Howard proposes the two "preconditions" for defeat of a government: a weak economy, and perceptions of incompetence.

At the same time The Prime Minister “in extremis” is claiming his government is strong on both these issues. I guess it is a matter of perception. At the moment the governing party is displaying incredible incompetence in the way it manages itself. Not a good sign for the country, but still a matter of perception.

The economy, on the other hand, is an issue of record and its health or otherwise is subjective only in so far as social/economic objectives. For John Howard the economy booming, and to prove it the Federal Government are ‘sitting’ on $17 billion.

This boom, the wealth is not being distributed however; because the broad economy is teetering on the edge of inflation and spending the money, even spent on urgent service delivery such as health, would cause an inflationary trend. That doesn’t sound like a healthy economy to me.

In the living rooms

Loan defaults rose by almost 30 per cent in the last financial year with failures to pay the bills on time up in every Australian state and territory. Nearly 10% of our population is now at the margin, at least on default figures. Then there are the ones like me who avoid the debt and just struggle.

Incomes nationally are growing at an annual rate of six per cent a year, because of better returns from capital gains and shares, but total borrowing was increasing by 15 per cent. This government pushed hard on an aspirational society because they believe if people are in over their heads they work harder.

But working harder increasingly equates to digging a deeper hole, what is the point of owning a McMansion or speed boat or whatever the dream when anyone who might be impressed is treading water along side you? The only winners are the corporations, and I’m not sure what the prize is for them.

Basic Services

Australia had an enviable health system once, based on early intervention to a large degree. Now if I became ill I would have trouble finding a GP. The alternative is the emergency department, with a pup tent, sleeping bag and provisions.

In the last Federal Budget the health system was under funded by some 15%, well the hospital sector at least. We thought the intention was to create an election distraction as state and federal governments fought over responsibilities. The latest news is that the Feds are running scared on spending the available money to fix the health system. It’s there, but as pointed out previously, so is inflation.

So what is so bad about inflation if it delivers services? More to the point, can we really trust corrupt outfits like the IMF and World Bank to make that kind assessment?

The answer to the first is a no brainer; even at a discount higher prices can only benefit those holding the wealth. For everyone else inflation bites even further into shrinking financial resources. For most of us inflation and a rate hike mean the same thing, dipping into reserves or refinancing just to make ends meet.

The second almost comes into conspiracy theory territory – almost. The fact is these and other fiscal control organisations are not overly concerned about the commonweal (the common welfare; the public good). To these organisations wealth generation is not intended to be universal, but purely for club members.

I was fascinated recently with an argument that out Federal treasurer Costello should be looking at his career options. Among those mentioned as near certainties was a posting as a director of the Bank of England. In fact none of the possibilities were with Australian institutions.

It is not especially heartening that those responsible for the welfare of our countries might find their skills more suited to these global umbrellas who owe allegiance to no one beyond their shareholders. The fact is they are already spurning their current shareholders, but I guess we just don’t offer the right level of personal reward.

Former Western Australia Premier and retiring federal MP, Carmen Lawrence, summed it up to a degree. While I don’t accept her assessment that a Rudd government has the answers she said:

"We need to broaden our horizons. It is rare to hear the Prime Minister [Howard] talk about anything but the state of the economy. He seems to think Australians are interested only in 'stuff'. We need a better balance between material gains and the quality of life.”

At every level of government the temptation is for self preservation and self enrichment. Nothing positive can happen, for the rest of us, when politicians are bought and bound by their own personal ‘aspirations’. What we really need is elected representatives who see their constituents as the shareholders, who fight for the people who elect them.


Praguetwin said...

I don't understand why public spending runs the risk of causing inflation but a $1.35 trillion tax-cut doesn't.

I guess the Aussies and the Kiwi's are much more serious about fighting inflation than we are (witness interest rates).

Still, I always thought that money flowing through the system meant prosperity.

Who knew it really means inflation? That is, unless rich people are the ones in the circuit of the flow.

Cartledge said...

PT, it is all very curious. I recognise that the Bush admin might not be concerned by the regressive nature of inflation.
But like you, I I thought money flow was a positive. Seems we just have to take the word of the IMF...