06 August 2010

Managing the GFC

In its timely and skilful management of the Global Financial Crisis the Rudd-Gillard Government is a victim of a phenomenon identified by the ancient Chinese strategist Sun Tzu 2,500 years ago in his The Art of War: the best victories are not perceived as such by “the common herd”, and so the commander does not get due credit for them.

In his Chapter IV (Tactical Dispositions) Sun Tzu says:

8.  To see victory only when it is within the ken of the common herd is not the acme of excellence.

9.  Neither is it the acme of excellence if you fight and conquer and the whole Empire says, "Well done!"

10. To lift an autumn hair is no sign of great strength; to see the sun and moon is no sign of sharp sight; to hear the noise of thunder is no sign of a quick ear.

11. What the ancients called a clever fighter is one who not only wins, but excels in winning with ease.

12.  Hence his victories bring him neither reputation for wisdom nor credit for courage.

On this analysis it would have been smarter politics for the Government to wait until the dole queues formed, then apply the fiscal stimulus to get the unemployed back to work. There would have been vast amounts of unnecessary misery and wrecked hopes and dreams, but at least the Three Stooges of Australian economic policy (Tony, Andy and Joe) – definitely part of “the common herd” – would have had to admit that there had been a problem and that the Government had tackled it.

The quality of Tony Abbott’s economic thought may be assessed by a very cursory examination of his propositions  that “Labor’s reckless spending” is leading us to unsustainable levels of Commonwealth debt, and we must “stop the waste”.

Regarding the notions of “reckless spending” and “waste”, there is little doubt that the way some State Governments chose to manage the stimulus spending in relation to their public schools left a lot to be desired, but there is a bigger picture here. We were facing the gravest financial crisis the world had seen since the Great Depression, and no-one could be sure how it would unfold. The Coalition hadn’t seen it coming, so for them to claim a superior ability to predict how it would unfold, or how it would have unfolded in the absence of timely action, has no credibility. The Government responded quickly, and in accordance with the Treasury’s advice to “go early”.

And as Nobel Prize winning economist Joseph Stiglitz told Kerry O’Brien on ABC TV’s The 7.30 Report last week, the greatest waste in the economy comes from having people unemployed and the  nation’s plant and equipment under-utilised. Stiglitz, by the way, was very complimentary about the Government’s response to the GFC.

As for all the alarms and excursions about the level of Commonwealth debt, the 2009 Treasury paper A History of Public Debt in Australia by Budget Policy Division officers Katrina di Marco, Mitchell Pirie and Wilson Au-Yeung projected net Australian Government debt at the end of 2009-10 to be 1 per cent, compared with an average of 48 per cent for the OECD as a whole.

Net Australian Government debt is projected to peak at about 6 per cent of GDP – representing just over three weeks of annual production.  At today’s official cash rate, servicing that debt would take about one day of annual production.

I think we can manage that, Tony.  

No comments: