Monday, July 01, 2013

What is Rudd's real position on economic reform?

The return of Kevin Rudd to the prime ministership raises more questions than answers with regard to numerous aspects of policy.

Chief among these is whether the Rudd has learned from the economic policy errors committed during his first tenure as Prime Minister from 2007 to 2010?

Casting our minds back prior to the November 2007 election campaign, then Opposition Leader Kevin Rudd sought to reassure voters that post-Hawke, Keating Labor would not pose as a risk to the largely bipartisan economic policy settings maintained from the early 1980s.

These settings could, for simplicity, be represented as a combination of fiscal and monetary macroeconomic policies emphasising consistency and stability for the benefit of private sector decision makers, and microeconomic policies focussed upon reform of labour, capital and product markets for the sake of more efficient resources allocation.

Although business cycle fluctuations remained, most notably in the form of the horrendous 1990/91 recession, Australia's real GDP per capita rose from about $43,300 to $61,000 over the subsequent fifteen years with minimal macroeconomic disruption.

With most economic commentators in late 2007 conceiving that this ''Great Moderation'' would continue unabated, the obvious political task for Rudd at the time was to convey the perception he would not upset the prevailing economic policy apple cart.

Accordingly, Rudd described himself as a ''fiscal conservative'' and, at federal Labor's official campaign launch, lambasted the Howard government for excessive spending and promised to apply a ''meat axe'' to an overgrown Canberra bureaucracy.

However, the seeds of subsequent policy contradiction were also sown by Rudd during this period, particularly in the guise of promised labour market reregulation that would empower Labor's union paymasters, and a suite of promises to act on climate change which would further distort energy markets.

After an initial twelve months in office laying down the basis of its committed retreat from microeconomic reform of product and factor markets, the Rudd government found itself compelled to react to a synchronised global economic downturn borne by policy-induced dislocations in US financial and housing markets.

Confirming the far greater economic risks posed by a political class beset by policy panic, the Rudd government conducted an entirely disproportionate response to the ''global financial crisis'', which continues to this very day as a weight upon Australia's economic saddlebags.

In a definitive account of the haphazard political process besetting Rudd and his inner circle of ministers and advisors, Lenore Taylor and David Uren, in their book Shitstorm, estimated that almost $80 billion in expenditure was committed from October 2008 to May 2009 on Keynesian-style ''fiscal stimulus'' measures.

The spending programs put in place, such as overpriced school halls and flammable home insulation installations, were highly controversial even at the time they were being delivered, but undeterred Rudd sought to justify his actions in a weighty 7,000 word tome which appeared in The Monthly magazine.

Prime Minister Rudd depicted sinful private markets wracked by instabilities with ruinous effects on employment, which could only be redeemed by the corrective policy actions performed by benevolent and omnipresent politicians and bureaucrats.

The debate about the economic effects of the Rudd spending measures during the GFC will undoubtedly remain the subject of academic and popular debates, but there is no question that, by early 2009, Rudd the fiscal conservative and market friend was well and truly dispatched, in office, by Rudd the fiscal radical and capitalist nemesis.

A range of issues, not least Rudd's autocratic style of organisation perhaps crafted during his appointment as head of the Queensland government's Cabinet Office in his early thirties, engendered his June 2010 downfall at the hands of Julia Gillard, Wayne Swan and Bill Shorten.

During his time in leadership purgatory, Rudd made minimal contributions to the Australian economic policy debates, save for the occasional speech defending the supposed mass employment-retention powers of his $80 billion spending spree in the half-year to May 2009.

In his first, and perhaps only, parliamentary question time as a returned Prime Minister, Kevin Rudd largely limited his economic commentary to international comparisons of macroeconomic and economic policy statistics, although he also appropriately expressed regret about the deaths caused by the grossly mismanaged home insulation program.

There can be little doubt that an answer to the question as to whether Kevin Rudd has learned from the economic policy errors, conducted under his initial watch as Prime Minister, will be revealed in the coming days and weeks, as Rudd unveils his claims for the current government to extend its six years of existence.

Indeed, the Australian public will need the answer, as it assesses who will be politically best placed to reverse the policy-induced damage to the Australian economy, including massive budget deficits and public debts, and rising labour and energy costs, of recent years.

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