The last thing they need are ideas

Peter Van Onselen is clearly miffed that not only could Julie Bishop not be bothered writing an essay for his collection “Liberals and Power: The Road Ahead”, but neither could the staffer she dumped the job onto, who ended up copying it from a NZ businessman. It may surprise some given Bishop’s call earlier this year for a ‘battle of ideas’ but in this blogger’s experience, those who bang on about the importance of battling with ideas are usually the least likely to have any.

Van Onselen appears to be especially peeved as he is hoping for the book to launch an intellectual revival in the party as the start of the Liberals reappraising their policies to regain power.

All of this is complete silliness of course. The Liberals’ problem is not that they don’t have a platform. It is that they don’t represent anyone who would tell them what it is. Business has lost interest in the Liberal party to the point that when they persisted with Workchoices after the election, business told them to put it away. This is the Liberals central problem; they are stuck with the natural response to a political party trying to work out what it is about is, why bother? Why not just disband?

Making those specific interests appear as universal as possible is the art of politics. Nowadays, with political parties not really representing any section of society but still hanging around, politics has become more about trying to make the universal specific to somebody. So we have Rudd’s working families and Nelson’s Commodore parents (Turnbull so far seems to have produced no-one). In the US we have the Republicans almost running an entire election campaign around some plumber named Joe.

This lack of agenda is not that new either. Howard hardly came back to power on a wave of ideas in 1996. In fact, everyone but Howard knows that he won on not having any ideas but instead posing as a safe pair of hands against Keating’s agenda. Not standing for anything in particular was the one lesson they decided to learn from Hewson’s defeat in 1993.

For the record, it might also be added that the ALP was not exactly an intellectual salon while in opposition over the last decade. In fact, after the 1996 loss, intellectual life in Labor pretty well imploded (and took much of the left-liberal commentary with it). There were some important speeches, for example, by Gillard, but mostly they were about dumping the past than setting out anything new for the future. Howard came to power on no ideas and spent a decade trying to pretend he had some (it fooled a few). But if there is any government that has been explicit from day one of not having any preconceived ideas, but rather leaving it to reviews and summits run by the great and good, it is the one we have now. Despite how much difficulty the media has with this, it has so far proved extremely popular.

The reason why we have the most popular government for at least a quarter of a century is that Rudd has adopted to the political reality that such narratives are not possible and to break from a decade of phoney cultural wars and contrived political agendas from both left and right made out of thin air. If Turnbull has one political attribute, is that he doesn’t seem to have an agenda either. No surprise that he didn’t contribute to Van Onselen’s book.

The problem Turnbull has is that the party behind him is not as comfortable with that fact. The majority still like to think the last government stood for something, even if it is recognised as unpopular and can only be talked in polite company as ‘sound economic management’. Unfortunately, two weeks ago they gave the game away and since then have been trying to claim it back (look at Janet Albrechtsen having a go at all those pro-statists coming to the surface in Europe. At least they had a banking crisis. Two weeks ago Albrechtsen was cheering the world’s most complete government bank bail-out in a country that didn’t even have one). For Turnbull' an insecure party will be a major barrier to him making a pragmatic response to anything. Unfortunately for us, it will probably mean more empty calls for ideas, more tedious books from politicians with nothing to say and more academics like Van Onselen telling them how to do their jobs.

The Day The Right Died

You can always rely on a Senator to give an idea of the mood inside the party because these strange political functionaries owe their existence more to internal dynamics in their own party than the electorate. The public stoning of Dr Henry in Wednesday’s Senate hearing and George Brandis’s bizarre behaviour on Lateline on Friday shows that the coalition had more in mind than political point-scoring last week.

There is a basic misconception that Turnbull’s call for Dr Henry to be sacked on Tuesday was no more than a slip of the tongue that was twisted by Rudd. If so, why didn’t Turnbull tell coalition senators to ease off when interrogating Henry on Wednesday? If the issue was really that Rudd didn’t take enough advice from Stevens, why did a Liberal backbencher then attack the RBA Governor’s own handling of the crisis at the end of the week?

What we have seen in the last week is the coalition trying to wriggle out of its support for a bail-out package that went against the core of what they are about. For several decades following the Great Depression, direct pump-priming by the government was seen as an acceptable way of maintaining growth. It was accepted on both sides of politics, especially Menzies through the 1950s and 1960s. It wasn’t until Whitlam in the 1970s when, both here and elsewhere in the world, that it started to lose effectiveness as an economic tool.

Since then the mainstream Right have defined themselves by leading the charge against government spending as an economic cure. It was something eventually accepted by Labor as well, reaching its apogee at last year’s Labor campaign launch when Rudd told the party “this reckless spending must stop”.

In reality it didn’t spell the end of the government’s economic role, far from it. But it was now directed at more structural issues, like dealing with the unions, subsidising business indirectly through public-private ‘partnerships’ and laying the framework for the expansion of credit through the financial markets. All the while the right portrayed it as vindication of their side of politics. A con trick, no doubt, but as Howard did so well, he could carry out record high spending and still make George Brandis think he was a free marketer.

No longer. The financial crisis has changed that and now the government is taking an upfront role in the financial system and back to pump-priming the economy. And the Liberals have agreed to it. It wasn’t even so much that they supported the bank guarantees and the $10.4bn package, but that they think it will work. If, according to the right, interfering directly with the financial markets and printing money to boost spending is wrong in ordinary times, why is it acceptable during an economic crisis? Surely it would make it worse, according to them.

This has come only months after the Liberals were already facing an identity crisis from having finally had to accept that their anti-union agenda is irrelevant a decade after it actually was. If the Liberals aren’t about keeping the unions under check, opposing government spending and allowing free financial markets, what are they for?

The dilemma for the Liberals now is that they may not be happy with what they have just supported, but they had no choice. It is not because Rudd’s measures will necessarily work. In fact, a government that is so unsure of itself that it feels the need to look decisive for its own sake and hide behind the advice of bureaucrats when it does so, may not be best for restoring confidence in the markets. But whatever problems the intervention causes, the direction is now only one way, more government intervention to solve it.

That is why whenever the critics on the Right are asked for their alternative, like Bolt was on yesterday’s Insiders, they have nothing to say. Instead with no alternative, and no way back, we have this furious attack on process, who said what to whom and when, but getting caught up in contradictions as they do so. So they were claiming that the government didn’t seek advice while attacking the integrity of those they would have got advice from. Accusing the government of being too quick to act and delaying too long. Indeed, the Liberals and The Australian have been so quick to find a breakdown in procedure that they have even got tangled up in claims that the government ignored advice from the RBA before guaranteeing bank deposits based on a letter written by Stevens a week after they made the decision.

Throughout the mess, the Liberals have revealed their dislike of the government bureaucracy. As Australia’s last political party, the Liberals are less comfortable than Labor about the decisions of government taken out of the hands of politicians and, given that they are at least elected, they do have a point. But it is an abstract one since political parties don’t especially represent anything much in Australian society these days anyway. That is why, whether Liberal or Labor, they will inevitably have to hide behind the bureaucrats for authority. George Brandis, after having just been involved in attacking the Secretary of the Treasury, was quickly deflated in the middle of his rant on Friday night when asked by Lateline’s Leigh Sales what the coalition’s attitude was to the government’s revised policy. He had no view than to say they would wait until they had heard from Treasury and the RBA.

A witch-hunt to hide behind

The Australian may be making the right point that somewhere along the line, the RBA Governor probably did state the obvious, i.e. that banking guarantees distort the financial markets. But Turnbull’s disastrous appearance on The 7.30 Report last night is a reminder that politically it’s a stupid point to pursue.

For future reference, the coalition might do well not to take its political lead from The Australian. The paper has its own agenda, and its own problems. In positioning itself in the quality market as the ideologue of the right, it has meant its editorial, and those of many of its journalists, spent the last decade engaged in a phoney cultural war that may have absorbed some of the right and the left, but was ultimately a sham. Part of it was believing there was a real neo-liberal economic agenda abroad and an anti-union Thatcherite one at home. This was supported by views so strongly held that when market forces really did hit, The Australian editorial and even its most free marketeer journalist went running for the government’s apron strings. The paper’s ‘revelation’ about who said what to whom over the banking guarantees (which it supported) is just an attempt to salvage some free-market credentials.

The Australian is just a newspaper that will be wrapping tomorrow’s fish and chips. The coalition doesn’t have that luxury. It too is saddled with a delusion about Australia’s economic policy over the last decade that it may have believed was a coherent ideological program but was in reality little different to that in Labour-governed UK. But unfortunately for the coalition, it can't just drop it. In fact this fallacy was only recently repeated again in this ‘critique’ of Howard by George Brandis:

Howard's most conspicuous achievements were in the economic field, where his liberalising instincts prevailed. His greatest insight was to grasp that Deakinite policies were obsolete; his most important legacy was the fundamental structural reform over which his government presided, and which gave Australia an economy fit for the 21st century.

Brandis thinks he is talking about the introduction of free market efficiency, but he really means a sales tax, doesn’t he?

Turnbull politically had little choice than to support Rudd’s move and should have stayed close, if at least with a bit of sceptical distance in case things go wrong. Unfortunately, to please those of the old leadership who didn’t want him in the first place, he has taken a good tactic too far, much as Nelson did before him and for much the same reason. What we saw yesterday with the grilling of the Secretary of the Treasury was the coalition finding anyone to hide behind, whether Henry or RBA Governor Stevens, to retreat and salvage some ideological credibility. But just as for The Australian, everyone knows what we saw a fortnight ago posing as a national-spirited act of bipartisanship - a loss of free market nerve.

Air-bag economics

I want to make sure that when we look back, that I can say to myself: it's been tough, it's been hard, nothing's guaranteed, but we've done everything that was logically possible at the time to keep this economy as strong as possible, given the impact of the global financial crisis.

K Rudd Minding Your Money: An Audience with the Prime Minister

2UE: Do you wish you were there running it? Or is it a little too hard now?

Costello: Of course I wish I was there running it … As somebody who built the surpluses now being spent and freed the country from debt, which has now given it the strength to go into this crisis, of course I wish I was there.

Yesterday’s tiswas about the government’s bank deposit guarantee was revealing. The mini-campaign by The Australian and the coalition over whether the RBA Governor approved the guarantee did have a point. Giving one group of financial institutions a blanket unconditional guarantee to raise funding through deposits will obviously hit others who also need to raise funding. While reassuring, it has the potential to make the credit tightening worse. It is no surprise the government has moved to modify it, but inevitably it will have to still leave banks with an advantage over other fund-raisers, otherwise there was no point doing it.

But what exactly is the political point that the Liberals are trying to make? That the government should not distort the financial markets? In fact, global regulators and governments around the world, even in the US, have always gone go to considerable lengths to ensure stable financial markets. Even on Wall Street, the Fed makes the markets’ bed every morning. Every interest rate move and tax cut has an eye on not disrupting the stability of the financial markets and providing a smooth field for them to play on. Such ‘distortions’ of government intervention have been a fact of life ever since governments have had an economic role. The idea that before this financial crisis we had unregulated financial markets is a delusion jointly held by the free-marketeers on the right and the left who think the financial crisis was caused by it.

However, we have seen a step change in that government role over the last month. It may not make the financial markets work better and indeed will probably make it worse, but their crisis has made such a move a political necessity. It is this political necessity that is going to cause problems for the Liberals.

Australian politics is in a strange position at moment. It has been realigned in step with what has gone on in the US and Europe, but without the direct pain of getting there. It has however, brought out a profound change in the political environment and the way the economy is being discussed.

This change has been building for a while. Costello was on radio the other day clearly regretting that he was not in charge now. This is understandable because really we have seen the culmination of his ‘economic policy’ for the last decade. ‘Costello economics’ was about doing little more than watching a surplus build up, largely because he didn’t really have any idea what to do with it, and calling it his. The only purpose he could think for it was as a buffer if things went wrong. Now, here we are and it is Rudd doing the distributing. (Rudd claims that he does have plans for it, but in reality, Labor’s nation-building was the normal sort of infrastructure projects any government would do. As seen at the Budget, Rudd’s alternative was always more about timing than direction, which is why he left it to review on how to spend it. Even on timing, Rudd didn’t seem in that much more of a hurry).

The problem with the Liberals’ strategy now is that they cannot propose an alternative to what we have seen around the world, that governments are now stepping up to directly be involved in the running of the financial system. They may be making some correct points on the problems of doing so, but they can’t follow it through. You can see it in QT yesterday and on Lateline last night as Julie Bishop resisted Tony Jones’s attempts to push the ‘who-knew-what’ on the RBA’s advice on the banking guarantee to any conclusion. The Australian obviously had a leak from inside the Treasury (again), but neither the paper, nor the Liberals, knew what to do with it.

The Liberals are ending up on the wrong side of this and going against the tide that is taking governments of both left and right in one direction. That direction is more intervention and even when problems do arise, the solution is never less intervention, but more fixes on fixes, as we are seeing on banking guarantees. But ultimately that intervention is about little more than trying to soften the blows. As Rudd made clear on Minding Your Money, even when he acts, he is never doing anything but providing a buffer against forces over which he has no control.

How have the Liberals ended up in this position? Well, a clue is a little commented fact about the federal party at the moment. For the first time since the election, they are looking united. Disagreements between the old leadership and those sections of the party that have risen to take its place since November, have temporarily abated. One sore point was over the New Sensitivity. The old leadership’s pretence that it was some faux Thatcherite toughness that made the surplus, would come into conflict with first Nelson’s, and then Turnbull’s, bending to the current political reality. Rudd’s Uber-Sensitive response to the financial crisis has left all the Liberals on the same sceptic side and Turnbull finally playing the economic dry he likes to think he is.

Finance and weak governments don’t mix

Opinion polls suggest Australia is being run by the most popular government since Hawke’s early days. And there is little doubt that handing out $10.4bn will make it more so (this is even after ignoring the latest bounce to Labor in the AC Nielsen which is just a reversal of the mythical Turnbull bounce it reported last time).

Yet popular does not mean strong. Both sides of politics are operating now without their core base. Since Rudd’s arrival, each election and by-election confirms the increasing softness of both sides’ support. Labor not only saw record-breaking swings against it in its Sydney heartlands this weekend but the coalition found one of its own core seats again dropping away to an Independent (by the way, to say, as Turnbull did, that Port Macquarie voters have a tradition for voting for Independents is meaningless, it is more that natural coalition supporters have lost the tradition of voting for the coalition).

It is that weakness under the government’s feet, even despite its popularity, that guides how the government is responding to the financial crisis. The Age’s Shaun Carney was right to contrast Rudd’s crisis summit with business leaders with Hawke’s Summit a quarter of a century ago. It is not just that the unions were not represented last week, but that business didn’t really have any reason to be there either. Rudd is leading the first Labor government not to be able to offer up the unions to help business solve an economic crisis.

It is this core weakness of both parties that is behind the New Sensitivity and the inability of either parties to make an unpopular step. It has now culminated in the Über-Sensitive gesture of the $10.4bn hand-out even before the evidence of the extent of the slowdown is in. But while all the attention has been on what the government is doing about a recession yet to happen, it is the involvement of this government and those around the world in the financial system that is likely to make such a recession more certain.

There are two problems with weak governments moving into the financial markets that stem from it worrying more about their own problems than those of the markets. The first is a basic one; with a crisis of profitability coming, they can’t decide whether to present profitability as a Good Thing or not. Here we had the government bad-mouthing the high profits of the banks one month, backing them up the next and now congealing both positions to formally supporting the profitability of banks but bad-mouthing the ‘obscene’ money-making activity of the CEOs they employ.

Bank-bashing for political reasons makes it harder to take the necessary action to bail them out. Here it has only been a bit of harmless political game-playing as the government hasn’t needed to be too hands on. But in major banking industries like the US and the UK, where governments were aiming to have only part ownership, they are finding their punitive actions on shareholders are leaving them dumped with the lot as investors back off from what is now a lousy industry to invest in.

All of this might just be bad news for bank CEOs and shareholders, but the resulting greater government control over the banking system leads to a second more serious problem over risk. Commentators have pointed out that one of the problems with the government guaranteeing banks’ fund-raising is that it will encourage banks to use the funds for more risky lending.

The real problem is the exact opposite. A myth of this financial crisis is that it is a result of too much risk-taking. In fact the derivatives industry on which it centred is all about off-loading risk. Risk was being passed around like pass-the-parcel with everyone off-loading it but no-one capable of managing it. The credit crunch has hit because banks have become so risk averse that they won’t even lend to each other now that the means of passing off that risk has gone.

Re-building credit lines will involve taking risks. But government policy is likely to encourage less risk-taking than the sort that would be needed to maintain lines of credit, for example, to a small business when a downturn is coming. As the government gains greater control over credit and try to remove risk from the system, it is likely to make things worse. It is why Turnbull was right that the government’s removal of risk for bank fund-raising whether on the whole-sale markets or from depositors, has now choked off the ability of other business to encourage lenders to lend them money.

The financial system has had a blow to its confidence and its willingness to take on risk. Governments that are unsure of their support base have a capacity to instil neither. This applies not just to highly unpopular ones in the US and the UK. Even here, a Labor government with no union base to call on has nothing to offer business but more state intervention. And this will be on risk-averse terms that will be more about protecting its own credibility than those of the financial markets. Right now this may appeal to individual business leaders who are now looking for security, but it is unlikely to be favourable to business as a whole.

Tactics

Turnbull may have looked bombastic getting on TV to do his own national address last night but he had little choice than to at least stake his position. Of course his claim that the government should have seen the warning signs earlier made little sense other than to try and put his and Nelson’s pseudo-populism over the last few months in a favourable light. Equating that with Rudd’s $10bn hand-out will cut little ice with voters as if there is one thing Rudd knows how to do, it is to make his highly popular actions look like brave statesmanship.

However, behind this, Turnbull put his finger on two weaknesses that may come back to cause problems for the government. The first is that this hand-out has been done for political rather than economic reasons. This is why the government keeps being asked for the changed economic advice and forecasts from the ones Rudd was talking about only a few days before when he brandished the growth “with a two in front of it” forecast by the IMF. In fact, in Parliament yesterday, Rudd still seems to regard those IMF forecasts as valid. When asked on what basis he decided on the hand-out, he said:

The basis of the economic advice lies in the IMF public report on the state of the global economy and the growth projections for the major developed countries going forward.

The problem here is that if, for example, the Chinese economy still holds up, and growth in Australia does still continue, Rudd could look like someone who blew half the surplus in a panic. He could still claim that growth held up because of the package, but how a one-off spending spree in the next few months could sustain growth beyond that would still have to be explained. As seen by Julie Bishop’s clumsy handling of it last night, this is a difficult line to hold, but at least the Liberals are finally positioned back on the non-populist side of the debate where they need to be.

The second line is even more unpopular for the moment but also could cause Rudd problems at a later date, his relationships with the banks. As a practical measure, Rudd’s announcement to tackle the ‘extreme capitalism’ of banks through the pay of their executives is, of course, utter nonsense. Firstly, we have been told that Australian banks are strong and have acted responsibly, so why is the pay of their CEOs a problem? Secondly, even on Wall Street, the job of CEOs is to maximise profit for their shareholders which, if they do not do so, especially on Wall Street, they are quickly dumped (albeit with very generous pay-offs). The ‘greed’ that Rudd is talking about is surely that of the shareholders that demand their CEOs find ways to maximise profits. Is Rudd suggesting that bank profits should be constrained? Of course not, when he has just been boasting how profitable Australian ones are. It would seem that the problem with some US banks is that they were not quite profitable enough.

Bashing executive pay is a politically useful way of giving some moral fibre to what is ultimately a Howard-esque way of buying support. Unfortunately for Australian banks, they have left themselves open to being used like this. There was a cute moment on The 7.30 Report on Monday night when the Chairman of the Australian Bankers' Association said that ‘no Australian bank is having to be bailed out in terms of capital. We can all raise our own capitals fine.’ Maybe that’s what the banks are telling themselves. But as Rudd clearly explained in Parliament, the very reason that the government guaranteed deposits and backed Australian bank funding in the wholesale market is that they can’t raise their capital ‘fine’ if they are competing against banks backed by their own governments. By taking the Labor government’s shilling, the banks have conceded they need it and so have opened themselves up to moralising from Rudd.

Yet at the end of the day, after lauding how profitable Australian banks are, Rudd is still going to want them to stay that way and will be exposed to a charge of being ineffectual, or in their thrall, if he cannot follow his recent moralising through.

The root of Rudd’s dilemma is that these ‘obscene’ credit instruments, as he calls them are not the problem but a solution that no longer works. The problem is not too much credit but that the credit arrangements we have had for the last twenty years to keep the global economy going have broken down and need to be re-built back up. That is why governments around the world have been desperately doing so over the last few weeks. Rudd, and his moral counterpart in the US, Obama, may damn the evil of credit and praise the virtues of ‘living in your means’. Unfortunately the global economy is still at risk of finding out how wonderful such virtue is.

Rudd’s Howard moment

Is Australia in economic crisis or not? First Rudd gave us reassurances that Australia’s banking system is the strongest in the world before taking the sort of action adopted by governments whose banking systems are close to collapse. Now we have an unprecedented economic stimulus to an economy that only a few days ago Rudd was assuring us would have growth next year with a ‘two in front of it’.

As Swan said yesterday, the world has changed over the last fortnight. However, what has happened is not just that the financial crisis has deepened but that the political classes around the world have become caught up in it. Starting from the US House of Reps turning down Bush’s bail-out plan, the political class’s authority has become entangled in the financial mess. As the markets show their lack of faith in the governments' ability to do anything effective, the fire-fighting has become more and more about them than the financial crisis itself.

Under such pressure the response of governments around the world is to act in ways that may give short-term relief to the financial markets and make it look as though the governments are doing something, but it takes them to a place they may not want to go. Not only are governments throwing overboard their own rules about fiscal restraint on which western politics has been running on since the 1980s, but probably more troublesome in the long term, they are being drawn into running their banking systems. All of them have acted on their own, but often wrapping it up with the occasional communiqué and photo-call where political necessity demands it to look like coordinated international action.

Rudd’s bail-out of the banks and the stimulation package show that while Australia may be relatively protected from the financial and economic crisis, its political class is caught up in the same problems of authority as the others. Here there is no immediate need to pretend that there is coordinated international action. The government’s banking guarantee was naked self interest to support Australian banks competing over funding on the wholesale markets. It did nothing to support coordinated action but undermined it and now forces the competitors of Australian banks to seek more support from their governments in the scramble for scarce wholesale funding.

But at least that had some economic rationale. The $10bn hand-out is harder to fathom from an economic viewpoint. It is always nice to see pensioners and low income earners get a hand-out. Indeed it is a shame that we had to wait for a financial crisis for it to happen. But it makes little sense from the way the government has described the economic situation. This is a ‘kick start’ for an economy that was not in trouble according to Rudd four days ago (and all we have had since is a record-breaking Wall Street rally). The Liberals’ $30 a week that needed to wait until a serious review has now become a $1400 hand-out. It is no surprise that Rudd has been so coy to explain the revised Treasury forecasts that underpin such drastic action.

It is also not a surprise that Rudd is getting support from the Liberals for something that goes completely against what their side of politics is supposed to believe. Turnbull has backed himself in a corner carrying on Nelson’s pseudo-populism, so his bipartisanship now was never a choice. But it also shows how hollow the right’s position has become through a decade of phoney cultural wars. If a free-marketeer like Janet Albrechtsen applauds Rudd’s bank bail-out she has clearly not thought it through. If the government is guaranteeing the bank’s raising of funding in the wholesale markets, it will inevitably place greater conditions on who they lend it to. That is the problem with the governments move to prop up the banking system around the world, it will inevitably draw them into getting caught up more with the banking operations, especially as there is now so much political capital tied up with them.

Rudd’s appearance on a national broadcast puts us on war-time footing before a shot has been even fired. There is a neat parallel with the last such broadcast in 2003, Howard announcing Australia’s token commitment to Iraq. Just as it started with Bush’s Armageddon plea to Congress three weeks ago, a government looking for authority may initially reassure us but then talks and acts in a way that creates even more uncertainty and so creates the need for more reassurance and so it goes around again. The difference is that this time such fear-raising has an immediate effect on the financial system and so made the vicious cycle even more so.

At least in 2003 there were those who doubted the scare-mongering about Saddam’s Weapons of Mass Destruction (although not as many as some like now to pretend). In 2008, no matter what the political persuasion or economic viewpoint, all such considerations have been put aside for the one goal: to manage our fragile sensibilities and nerves as though that was the cause of the problem. We are all psychologists now.

Rudd steps into the maelstrom

It is possible to detect a creeping admiration from even some unlikely quarters in the media for the way Rudd is handling the financial crisis. Comparisons have been made to Howard’s tightening of gun laws after the Port Arthur massacre. However, Annabel Crabb was much closer to the scale of the crisis by comparing it to Howard’s war-time pose during the War on Terror. Yet this is still missing that this is not just a financial crisis, but a political one too and getting involved in it opens many more political dangers for Rudd.

In the US the crash has not just exposed the inability of the President to influence Congress but the alternatives lacking from either of the candidates who will be replacing him. Obama is a passive recipient of the shift in the campaign towards the economy but it not because he has grabbed control of the agenda with a plan to deal with the crisis. (You would think if he had one, now would be the time to push it and consolidate his hold on the White House. It does not bode well for what he will do if he gets there). In Europe, as well, the unity they keep talking about has fallen apart just when they need it. The political classes on both sides of the Atlantic have tried to recover their poise and show some coherence to sceptical financial markets. But all global coordination has amounted to is a meaningless half point cut and the high-powered photo calls we saw in Washington on the weekend.

It may be true that some in Labor and the media are seeing this as a chance for Rudd to gain authority. Yet there are several contradictions in what he is doing. First, while on the one hand Rudd is reassuring everyone that Australia’s financial system is one of the strongest in the world, he is then acting as though it is one of the weakest. The support Rudd has just announced for Australian banks goes beyond anything announced by most other countries, arguably even those two financial basket cases, Ireland and Iceland.

Rudd is facing the same problem other governments are facing. In looking to be decisive, he is forced to act and talk in a way that undermines confidence further. Just as Bush spooked the markets by talked of financial Armageddon if his bail-out plan was not passed, Rudd’s actions have now made a run and collapse of Australia’s banks a possibility that needs to be dealt with.

If Australia’s banks are so strong, why the need for this exceptional assistance? The media parrots the answer given to them by the government that this drastic action is needed to prevent savings going to other countries that have offered some guarantees. But by leap-frogging the assistance given by other countries, Rudd has raised the bar even further still. It was this sort of beggar-thy-neighbour move by Ireland that started the slanging match in the EU two weeks ago. While Rudd and Swan talk of the importance of international cooperation, the government’s move has just made it harder. It shows just how difficult it will be to get any meaningful international framework established when the global move of capital accentuates the differing interests of the national governments.

A breakdown of the international political agenda is not good news for a government reliant on it. Whereas Howard saw one forged when he was in New York on 9/11, Rudd saw another blown away in New York at the beginning of this month as the climate change agenda was sidelined by the financial turmoil. Rudd now appears to be undermining it at home as well.

One of the main arguments of the government so far was that its reforms had an economic rationale. This is the argument that it especially applied to its climate change program. Rudd and Swan called it the ‘greatest economic issue of our time’ and maintained that the economic cost of not taking action was worse than doing so. Now Swan’s unwillingness to speculate whether the emission-trading deadline is still on track has undermined that message. Even if the government presses ahead, it has implicitly given into the right’s argument that this may be an environmental benefit, but with an economic cost.

Rudd has had several advantages so far in dealing with the crisis. Obviously it has helped that the banks have held up better than elsewhere (although the endorsement Rudd was brandishing from the WEF is probably not much more meaningful as the top-fifth ranking it gave to the now non-existent Icelandic banking system. Australia’s banks are vulnerable for precisely the reason the government gave for its move yesterday.) It also helps that Australia does not have the sort of close economic ties that made Ireland’s EU partners bad-mouth its government when it took such unilateral action.

Rudd also benefits from a weak opposition. Bolt was right on Insiders that no-one will care that Turnbull pre-empted some of the government’s initiatives. Turnbull probably did more damage by the way he took credit for them and his continuation of Nelson’s populism is losing what friends he had in the press and the party. But those who are drawing political conclusions from what is happening to world leaders at this stage of the crisis are missing the plot. Outside some US Republicans, bailing out banks and pumping liquidity into the economy is hardly going to be unpopular. Paying for it might be though. It is difficult to see where the political leaders are that have the authority to apply the tough measures it would need. Here though Rudd may not be too badly off. After all, one important plank of his agenda, climate change, may be eroded but the new one may pretty well have the same message, which he could be quite good at selling. Austerity.

Rats and Liberals give Rudd gravitas

What is your biggest fear for Australia, right now, what is your nightmare for Australia?

K O’Brien The 7.30 Report

Rudd’s performance on The 7.30 Report last night was better than his last appearance three weeks ago. But much of the difference was down to Kerry O’Brien who since then seems to have become a hysteric. It is not hard to appear like a statesman against such histrionics.

The panic is also making Turnbull’s continuation of Nelson’s pseudo-populism look less well-timed to normal media supporters of the tactic like Shanahan. Turnbull’s taking on the banks last week was an especially bad move after they put him in his place following the last interest rate cut. Like Nelson’s pushing for a rate cut a month ago, Turnbull has put himself in a position that may not play well to a party still clinging to an economic credibility as its one key selling point.

Yet if Rudd is appearing increasingly statesman-like, it isn’t because he has done anything. Unlike the US administration and the Europeans, he hasn’t needed to do anything but call foreign leaders – and tell everyone he has done so. The political classes in the US and Europe have been caught out by the crisis and have been trying to regain credibility ever since. The global half point rate cut on Wednesday was more to show that world leaders could coordinate something, no matter how ineffectual.

With the media and the Liberals still wobbly, the government should easily benefit. But if things begin to go wrong in the economy, you have to wonder what will happen to a government that has no real social basis from which to manage it.

Turnbull: A rich man’s Nelson

Is the penny starting to drop about Turnbull? Maybe it’s the polls. The latest one, Morgan, gives a new twist to the non-existent Turnbull ‘bounce’ by reporting a move away from the Liberals since Turnbull took charge. Of course, this modest shift to Labor is as meaningful as the AC Nielsen poll that showed one the other way. It is just that the AC Nielsen was the hook on which the media hung its ‘game-is back-on’ narrative over the last three weeks.

The Australian’s Lenore Taylor and The Age’s Phillip Coorey have now picked up that the big change in direction that was supposed to happen with Turnbull’s arrival, has not. Both articles would be a bit more interesting if they could explain why Turnbull is now emulating Nelson’s strategy. For Taylor to do so might be a bit difficult because it would mean going against the views of her colleagues in the paper, especially its Chief Political Correspondent.

Turnbull is constrained from being the economic dry he clearly wants to be by three factors, none of them recognised by the Canberra Press Gallery. The first constraint is his popularity, or lack of it. A reason why politicians go down the populist route is that it is more, er, popular. Turnbull comes to the leadership with the sort of ratings that caused Denis Shanahan to kid himself that he could use to get rid of Crean in 2003. Turnbull’s chief weakness is that he has allowed the government to portray him as out of touch so early in his leadership. It means if Turnbull tries the economic rationalist route, he leaves himself vulnerable to the sort of attack that Keating used against the ‘feral abacus’ in 1993.

Such a hit in short-term popularity might be feasible as a long term positioning as a ‘responsible economic manager’. This might become useful if the government starts to look as though it is losing its grip on the Australian economy. Unfortunately, Turnbull doesn’t have that room to manoeuvre. He does not have a strong enough position in the party to bear poor polling for very long. Dennis Shanahan might think there is unity behind Turnbull but already Costello, Abbott and Nelson have been undermining him in their own special ways.

Incredibly, Milne even carries on this myth of Turnbull’s strong position in the party by claiming that he has successfully broken with the Howard years. This is in the same article that reports that Howard himself is actively phoning around the party warning against Turnbull taking it too left. Having someone so influential on your back is why on all the issues that Milne claims on which Turnbull differed from Howard, such as climate change, the republic and social issues, Turnbull has not pushed a single one since coming to the leadership. In fact, the Howard story highlights Turnbull’s problem. Turnbull has Howard, Costello, Minchin and Abbott to contend with if he wants push a more liberal agenda. While on his side, Turnbull has … Chris Pyne.

Turnbull is being forced to act like Nelson because his position in the party is even more conditional than Nelson’s. However, Turnbull also has the same problem that politicians on both sides are facing and what makes the New Sensitivity the prevailing orthodoxy. Neither side has much authority to do anything else. The financial crisis in the US has highlighted a political crisis as the President is unable to impose his will on the Congress. Gerard Henderson on Insiders thought this is natural for a President near the end of his term. The trouble with that argument is that neither of those who will be replacing Bush is taking control of it either.

If the world’s most confident political class is floundering, the Australian one would hardly be much better if the turmoil struck here. Both sides have given reassurances on the resilience of the Australian financial system but then so did the regulators and governments of other countries until things went wrong. The crisis is unprecedented and any politician who pretended to have an economic agenda would be exposed as soon as the unexpected happened. Instead, the response of both Labor and Liberal has been to act as glorified consumer lobby groups pleading with the RBA and commercial banks to mitigate the pain but with no control over any of them. Only Rudd seems now ready to take it further, as we are also seeing with Obama in the US, and show us if you can’t control something, you can at least moralise about it. It is hard to see how Turnbull, who is only just working out how to do empathy, will be able to move on to that.

Spot the Liberal

Look very carefully at the photo of government heads taken at yesterday’s COAG meeting. One of them is a Liberal. Can you guess which? (Hint: He is sitting on Rudd’s right.) So much for the election of a Liberal Premier shaking up Rudd’s federalism. In fact, when it came down to COAG being criticised by a spokesman from his own party in Canberra, Barnett preferred to take Rudd’s side.

Rudd’s call to ‘end the blame game’ worked as a tactic not because there were Labor Premiers in every state (in fact that made it look more like a politically expedient stunt) but because arguments between the political parties in the different tiers of government had lost their meaning. Howard’s attempts last year to make something out of hospital management in a Tasmanian town proved the point.

State governments are at the forefront of a state trying to justify itself and are willing to go along with Canberra’s bear hug if it will offload responsibility, such as yesterday’s decision to centralise credit protection. Other than that, they are all wholy reliant on spending to justify their governments' existence and Canberra holds the purse strings. Barnett, who is still sounding surprised to be in the Premier’s seat and whose hold on power relies on meeting the Nationals' spending demands, hardly has a plan to change that.

With no real political difference to Labor it will be interesting to see why he will be any better at managing the state’s services. It will just increase his reliance on Rudd’s federalist agenda. If the WA Nationals balked at the final hurdle to an alliance with Labor, Barnett may take them there anyway.

Factors for instability

If the latest Essential Research poll was any guide, Rudd's overseas trips are more a concern for the media than the electorate. But his last trip did expose an important weakness of this government. The reason why the latest four days overseas was a problem for the media, compared to the previous forty-three, was that the purpose of the last visit was not clear. The reason why the purpose was not clear was that the original one, climate change, was swept away by events. The US financial crisis (a political one as well) forced Rudd to hurriedly change tack and join in the general moralising against the financial markets. Rudd's New York trip showed the problems for a government that has hitched itself to an international agenda over which it has no control.

The uncertainty of international events for a government reliant on them is one destabilising factor. The government is losing another prop to its stability at home. Gillard was widely applauded as a master performer during Rudd's audience. Gillard is good, but not that good. Swan's performance is hampered by having to deliver an economic policy the government doesn't have, but Gillard has been helped by delivering an industrial relations policy the government doesn't have.

The ACTU's complaints about Labor's industrial relations policy are totally disingenuous. It is inconceivable that they did not know that Labor would be bringing in Workchoices-lite. Gillard was right; there was no betrayal as she made perfectly clear before the election what they would be doing. Having now won the election Gillard can easily dismiss any complaints about Labor's IR legislation because it represents the will of the people. The ACTU's moaning and current ad campaign can only be explained as an attempt to justify itself to a membership whose interests it so poorly serves.

Labor's objections to Workchoices was always a sham because the basis of it, a clampdown on collective bargaining, had been a fact of workplace life ever since Keating reinforced enterprise bargaining 15 years ago. As far as business was concerned, Howard's attempt to take it further was an act of 'vindictive bitchiness' (as Keating called it) that at best was an irrelevance and at worst, a bureaucratic hassle.

Workchoices was always more about the relevance of the Liberal party than IR necessities. It was why the Liberals had to shut up while Gillard mocked them on Workchoices after Labor came to power, no matter how little Labor's proposals really differed in reality. The pretence of Labor's Workchoices attack also had useful internal purposes for a Labor party also unwilling to face the question of what it really stood for in a world where unions have lost their relevance.

Turnbull, like most of the Liberal party, has realised that Workchoices no longer fulfils its role as representing party interests (especially as business have made it clear they don't want them to pursue it) and so will not oppose the passage of Labor's IR legislation in the Senate. This brings a period in which Labor managed its internal issues through opposition to Workchoices to a close. It is hard to see how Gillard's performance over other areas of her portfolio, such as an under-funded education revolution, will be quite as convincing both to her opponents and those on her own side.

Yet if the government is losing some factors that gave it stability and direction, the Liberals look even more unstable. The coalition may have accepted that Workchoices no longer does the trick but have not found anything to replace it. This is represented by the old leadership losing control and Turnbull walking into the vacuum.

It is not just that the media is making up a Turnbull bounce where none exists and had expectations for Turnbull's mastery in Parliament during Rudd's absence that never materialised (another reason why Gillard's performance was over-assessed last week).

The media also seems curiously unwilling to talk about why Turnbull is still stuck with policy positions that he has clearly opposed in the past. They also don't really want to talk about the lukewarm public support he is getting even at this early stage from major figures in the party like Costello, Abbott and Nelson. Probably the most telling is Nelson, who not only seemed highly pleased to be compared favourably to Turnbull by Tanner last week but also would not rule out having another crack at the leadership. It is not because he really has another chance but the fact that even now, he can so easily imply that Turnbull's occupancy is temporary.