The phrase "it's the economy, stupid" has been transformed into "it's the perception, stupid".
The G20 conference being held in London is all about perception. To be fair, there is something in the conference for everyone. Politicians get to be seen at high-level important functions "doing something". Protesters get to protest. Police get to fight protesters. Media get to report. Analysts get to reflect on what it all means.
All up this is precisely the type of stimulus package the world has come to expect; everyone runs around looking busy but nothing of value actually happens.
The upside of the G20 conference, however, is that it highlights the irrelevancy of the United Nations. The designated talking shop is being ignored.
Also the International Monetary Fund seems to have been left out. A topic for recent discussion is how and when to pump more money into the IMF. Hopefully someone will suggest that we don't bother reviving the IMF. It's not quite clear what the IMF should be doing in a world of floating exchange rates. It certainly did nothing to prevent the crisis.
For the political classes the G20 conference is very valuable. It is important to be seen to be blaming the crisis on foreigners, while also being seen as part of the global solution to a global problem.
From Australia's perspective there is a lot of truth in the argument that the global crisis is not our fault. Poor American banking practices driven by irresponsible government regulation combined with excessively low interest rates after 9/11 are the immediate cause of the global crisis.
The Americans need to fix their banking system; we in Australia have little to offer in that process.
The solutions to the global financial crisis are not all global in nature. Rather politicians should be looking closer to home for solutions. Consider for example, trade, one of the great challenges facing the global economy. Some fear that international trade could collapse plunging the world into depression. We can do our bit to prevent this by liberalising our own trade practices.
Abolishing the Foreign Investment Review Board, suspending anti-dumping regulations, and placing our quarantine practices on an objective scientific basis would go a long way to establishing our bona fides in the area.
Australia, Britain and the US want the other G20 members to agree to additional fiscal stimulus packages. This seems to be quite presumptuous; politicians wanting to spend taxpayer dollars should seek approval from their own electorates, not foreign politicians. It is quite clear that the stimulus packages already announced in those economies have failed. The Australian government has already committed to spending over $50 billion and has increased its continent liabilities to nearly one trillion dollars -- approximately 100 percent of GDP.
Having run out of our own money to spend, the government is clearly hoping that foreign governments, the European Union in particular, will spend their money.
Thankfully, the Europeans aren't keen on this strategy. Quite rightly they fear that reckless government spending will simply result in higher inflation.
We don't really need a global stimulus package. We certainly don't need a global regulation package. What many people don't realise is that we already had such a package, in place, before the crisis broke out.
Basel II was meant to create an international benchmark for domestic financial institution regulators. Northern Rock, the UK bank that first showed signs of distress early in the crisis, was compliant with Basel II and was expected to pay back capital to shareholders. Australian banks and regulators have been very conservative in their practices and it is this local practice that has seen our financial system escape the turmoil relatively unscathed.
The global financial crisis has highlighted a lot of domestic problems that need to be fixed. The challenges facing Australia have no solution in London; the solutions all involve hard work and tough decisions in Australia. One of the things government should have considered in its stimulus package was reducing payroll tax. That tax, however, is a State level tax and no State government can really afford to give up the revenue. So Australia's fiscal inadequacies are having a real consequence on peoples' lives and employment.
These types of issues need to be fixed -- indeed, Kevin Rudd promised to fix our federal system of government at the last election. How the States are financed is the beginning of that process -- yet nothing has been done.
Government at every level has suddenly undertaken "urgent and necessary" infrastructure. Yet it is not clear that infrastructure spending should only happen when the economy slows down. A lot of that spending is simply waste. "Shovel-ready" has never been a sound method for allocating public spending. For too long governments have been playing politics, and have not been making the hard choices necessary to maintain and expand our infrastructure.
Yet, again, the current government was elected on a promise to do something about this.
The State governments are all in a terrible financial pickle. Take Queensland for example; which recently lost its AAA rating and its State budget is in deficit despite expected State growth being higher than Commonwealth growth.
At the first sign of trouble all the State budgets collapsed in a heap. State governments provide a lot of the public goods and services that we take for granted, yet they are not adequately funded.
Strutting about on the global stage and "solving" global problems detracts from performance on the home front. That performance has been poor. Due to monetary policy failure the Australian economy had stalled by September 2008, the December stimulus package failed, while the second stimulus package will do little to fix the economy.
If ever the term "think global, act local" had any relevance, now is the time. Cleaning up our own economic backyard, rather than peering over the international fence uttering cat-calls to spend, is the best contribution Australia can make to a global economic recovery.
ADVERTISEMENT
No comments:
Post a Comment