With Road to Recovery, Kevin Rudd has once again offered his views on where we came from, where we are and where we are going. Once again he is exposing his own individualistic views on how economies tick and how he is the man to make the tick louder and more enduring.
Basking in some indicators that suggest the economy has ridden out the global financial crisis, as a result of his spendthrift measures, he wants to moving into what he hopes will be a new austerity driven path to sustainability.
He starts his new essay with a repeat of a howler that featured in his first Essay. He argues that Roosevelt was the one who got it right in the thirties with a massive shoveling of money into the US economy. The fact is that US gross domestic product per capita in 1938 was still below the 1929 level and net investment was down 15 per cent. The deficit-cutting UK and Australia fared better and saw their economies grow by over 10 per cent in the same period. Other economies also saw lower unemployment than the US. The wage boosting Roosevelt's policies brought US jobless in 1938 to 19 per cent compared with a rather better level of 9 per cent in this country where, like in others, wages were reduced in line with the lower level of real income.
And contrary to the Treasury view on which he based his spendathon, he no longer sees the economy roaring back to life. Instead he adopts his own version of a Churchillian blood, sweat and tears stance in offering us negative investment, higher interest rates and growing unemployment.
He also sheets home the blame for the current crisis to the "corporate cowboys". Not for our Mr. Rudd is a cause of the crisis the lax US monetary policy so carefully demonstrated by Stanford economist John Taylor. Nor does he show an understanding of the US housing policy with government requirements on the banks to lend to people who would otherwise be classed as high risk and the collapse in financial confidence this triggered.
In a dismal lack of familiarity with history he considers it is only through actions like those he has taken that the green shoots he says are evident have been allowed to germinate. The current world downturn is one of a couple of dozen over the past two centuries, ranging in severity from the Great Depression to that in 2000 when US unemployment peaked at under 7 per cent. All of them have been caused by excess, and doubtless Mr. Rudd's corporate cowboys have figured. So, ominously for his analysis, have faulty government policies.
Mr. Rudd, as a man who has had no exposure to work outside of government, is astounded that anyone could consider the cure for recessions does not lie with government. In the light of his misreading of the causes and progression of the Great Depression, this is hardly surprising.
Evoking the language used to describe terrorism he calls those who do not share his big government agenda and faith in government controls over the economy as "market fundamentalists". His own views are, naturally enough, those of the "responsible centre".
Mr. Rudd attaches much of blame to "cheap savings" from the Far East. It is true that the US was borrowing an inordinate amount from the high saving nations like China and Japan (and, though he neglects to say so, Australia was doing even more of this). He urges all developed countries to start saving more -- heroic words from a man who has been the prime plunderer of domestic savings, diverting them to consumers in an attempt to kick start the economy. And he gratuitously advises the developing nations, who he says are saving too much of their income, to stop doing so and spend the money instead on welfare. To China he is saying, "Cannibalise your savings and start spending for today rather than trying to catch up to western living standards".
In a breathtaking statement of misinformation on his own policies, he says, "Seventy per cent of the total direct investment under the strategy has gone to infrastructure". He is actually only talking about a small amount of the money (which includes the back-of-the-envelope impulsive decision to spend $43 billion on the National Broadband Network). And even the spending he claims as infrastructure can hardly be said to contribute to his much vaunted productivity enhancing expenditure. In fact of the $42 billion Nation Building package only the $2.2 billion allocated to roads and rail is productive infrastructure. Doubtless much of the rest -- including increased welfare housing, Pink Batts, school toilet blocks -- is worthwhile expenditure but it is difficult to see it delivering a productivity return.
Mr. Rudd thinks that in taking taxpayers money he prevented economic collapse. He now wants to pay back the future's funding that he so ruthlessly raided.
In what is clearly part of a long CV for the position as UN Secretary General, Mr Rudd urges global coordination. The G20 (which many will recall, was the group about which Mr. Rudd claimed G.W. Bush was totally ignorant) is given a lofty role. The IMF is to be transformed into a kinder, more loving institution that will be more indulgent to the debtor nations (in an attempt to get them to spend more and save less!). At least he no longer sees a sudden economic upsurge along the lines of the Treasury modeling. Instead he sees "mountains of debt" (to which he joyfully has contributed) as a "drag on global growth for a long time".
Mr Rudd claims he will now start winding down the size of government. He says that expenditure growth will be held to less than 2 per cent per annum. That is a pipe dream for any ALP Government. In any event over the next two years and probably beyond, two per cent growth in government spending will exceed the aggregate growth in national income. He claims $55 billion in savings over the past two budgets -- yet oddly enough in spite of all those phantom savings budget expenditure has mushroomed!
One area of taxation, the "Carbon Pollution Reduction Scheme", is not mentioned as such. This new carbon tax will provide $10 billion in new revenues that will escalate annually. Revenues from the carbon tax can be constantly raided to bring home the electoral bacon. The problem Mr. Rudd, is the carbon tax will drastically undermine the capacity of the economy to produce. It may raise revenue but it will impoverish the economy as it does so.
As the Prime Minister says, we have to make tough choices. One is between a big spending high taxing windbag with a slender grasp of economic history, and the other guy, whoever that might be.
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