Monday, July 27, 2009

The Prime Minister's essay on the economy

Prime Minister Kevin Rudd has published a long essay in the Sydney Morning Herald which lays out his vision of what's happening financially to Australia and what we can expect over the next few years. Steve Keen has published a commentrary on the essay on his Steve Keen’s Debtwatch blog which I'd recommend reading because he zeroes in on the fact that KR does understand what has happened to the World economy and to Australia's as well. That is he sees the crucial role which debt has played and the way deleveraging of that debt will hold back industrial economies for many years to come.

While I generally agree with a lot of what Steve Keen says, there are lots of red flags in this Kevin Rudd essay from my point of view. Take the following quote:
The second new challenge is to build the foundations of sustainable growth. It begins with recognising the source of our future growth cannot be the same as for past growth.
Sustainable growth? WTF is that? We are already running up against environmental limits all over the place in this country. As just one item in a million, I happened to watch a documentary last night in the ABC about the shrinking habitat of cassowarys in north Queensland - it appears there are only 1500 or so birds left. Their habitat has shrunk because we're building out their tropical rainforest home. Another quote

But this does not mean we should accept that growth has to be lower, or that we should reduce our aspirations. Just because the global economy will be tough, we must not accept lower growth as inevitable. The budget forecasts growth over the next economic cycle at roughly the same average level as growth over the last cycle. This will be achieved only through a responsible agenda of future economic reform.

Australia will need to work smarter and harder to achieve better national growth in a weaker global environment. We need to implement a global competitiveness agenda for Australia that reinvigorates the drivers of productivity growth. Our mission must be a more globally competitive Australia capable of securing a greater slice of what may well be a more sluggish global economy.

In other words, we are going to fight an economic war with the rest of the world, where those weaker than us will go under in order that we get our "share". As if our share is so small already! And who will these weaker competitors be?

This is the classic zero-sum game. It also assumes a world economic environment which is "fair"; that is, where the other players obey rules which will allow us to win. We are not in a position to dictate these rules to the players who are the real powers in the game: the USA, China, the EU and India. When the crunch comes, and it has come already as we have recently seen in the arrest and imprisonment without charge of the mining executive Stern Hu, players like China will play very hard-ball. And let's be clear about Australia's real strength in all these games. With a tiny population and a tiny defence force we are nothing.

The statement above by the Prime Minister seems to implicity recognise that the game is zero-sum. I believe we are in a transition towards a time when the gloves will come off, and at the level of international politics we will drop the polite fiction that there is one World we're all working towards. Within a few years the power plays will be naked with no polite pretenses. Let's be clear what's at stake: we have resources which other people want in order that they may win at the game. Are we going to be in a position of strength with regard to China, especially when we're bloated with debt and heading into a future where we are going to be even more dependent on oil imports to keep our economy operating? My feeling is that we are looking to a time where the kinds of humiliations which the powerful nations in the industrialised West have been able to inflict on those we have seen as "lesser" are going to be inflicted on us. Unless the Chinese come apart first.

The essay is an interesting document in that it does lay down the ground rules which whatever government which runs this country will follow for the next few years. We, meaning you and I, are exhorted to work harder. This is because the government is going to be strapped for revenue as we slide off the peak of world production of oil and other primary powerers of our economy, and unless we all become virtual slaves of the system, the system will crash. That the system is crashing anyway cannot be admitted because we have everything invested in it - there is no alternative. This is what always happens when a population of any sort of creature runs up against the limits of its environment.

There will be a mighty crash, despite everyone's best efforts. It's not that far away. If you want to come out the other side of it, start preparing now!


The Naked Mechanic said...

G'day Loyd, thanks for the recent series of posts - all good food for thought.
I've just posted a speech by Andrew McNamara, the recently deposed Queensland minister for sustainability and the environment, stirring stuff indeed - but why do these buggers only get on their soapbox AFTER they have lost their power and influence.

Lloyd Morcom said...

Exactly Rob. Unfortunately it seems the dynamic of politics is such that it is impossible to turn the ship around when you're made it to the controls. Great speech by Andrew McManara — everyone should race over to The Naked Mechanic and read it.