Lack of Interest

If interest rates are to be considered a political football, the 2007 Federal election was the Grand Final. They have becomes such a fixture of economic discussion that's it's hard to imagine we'll ever move past it, but I'm hoping this was the last time they will feature so prominently in an election debate. So let's put the issue to bed.

The Coalition were guilty of misleading the public on nearly all aspects of the way role interest rates play in our economy. In 2004 they made as much hay as they could out of this, and paid a price for it. Why couldn't they resist the temptation? Well, we all know that Australia is awash in a sea of debt. The numbers certainly attest to the fact that Aussies were sensitive to interest rates in their political leanings.

The following graph (stolen shamelessly from Possum Comitatus) shows how closely the opinion polls tracked interest rates, and shows what would have had to happen for the ALP to lose the election. If there were be any doubts about the potency of interest rates as a political issue, this certainly shakes them. Cause and effect are of course by no means certain in this sort of analysis, but it's clear the interest rate hikes didn't help the coalition one iota.

Unfortunately, since Latham's days, the ALP has implicitly or explicitly bought into the interest-rates-as-an-indicator-of-economic-gravitas line. Now that we are over the line, though, are interest rates neutralized as an issue? Labor has it's "17% mortgage rate", the Coalition have their broken promise and six interest rate hikes in a row. Now even the most disinterested amongst us knows that the Liberal party does not, in fact, posesss an interest-rate supressing magic wand. Let's admit that the Federal Government doesn't control interest rates. Here are the facts.

1. Despite political campaigns, the government has no control over interest rates. The Reserve bank sets them in accordance with its mandate to keep inflation below 3% (higher interest rates cub spending and so help to lower demand and keep inflation under control).

2. The historical data don't suggest that Labor has a worse record on interest rates. Under the last Labor government, cash interest rates peaked at 19% under Hawke but only 7.9% under Keating. Under Fraser, interest rates peaked at 21% in April 1982. Mortgage interest rates hit the following highs: Whitlam, 10.38%; Fraser, 13%; Hawke, 17%; Keating, 12%.

3. Despite Howard's mantra of "17%", the fact is that mortgage rates were capped by regulation when he was Fraser's treasurer. It was Labor that derugulated the banking industry.

4. Talk of deficits and surpluses is also misleading. Surpluses are a sign that taxation is outstripping spending, indicating a lack of sufficient investment in infrastructure. Deficits are clearly correct policy when the economy is in recession. Promising to keep interest rates low by running surpluses is not sensible fiscal policy. In this day and age, Government borrowing in any case comes from global financial markets and will have little effect on interest rates domestically.

5. Even for mortgage holders, it's not the interest rate that matters per se, but the impact interest payments have on their disposable incomes. Australians were paying more interest under Howard than under Keating because debt levels are so high.

Finally, the rhetoric of Howard was often about "wage pressure". This obviously means keeping your wages low as the economy grows. I don't know what this can mean except keeping wealth growth as much as possible in the share market and as little as possible amongst wage earners.

The economy is a legitimate political issue, of course. It's time to put aside this narrow focus on one misleading economic indicator and judge a government's performance by a more realistic set of metrics: overall growth, environmental responsibility (externalities), standard of living, long term thinking. Under these criteria I have no doubt a Labor government can perform as well as any in the world.

(Andrew Charlton's Comment in November's issue of the Monthly is a great and more detailed debunking of the interest rate myths.)

If the Coalition Scare Campaign Was True

Top 10 headlines from the alternate universe in which the Coalition campaign had been based in fact:

• Howard vindicated as interest rates hit 10% - per week


• Stock market plunges, halt to trading called as red guards seize ASX


• Banks to be nationalized immediately, says Politburo spokesperson Gillard





• Dockworkers halt imports, demand 7-figure raises


• Business owners urged to stay indoors as unionists take to the streets


• November 30 declared 'National Being Ashamed of Australian History Day'


• Sydney CBD in flames as firefighters strike


• Executives and families to 'wait quietly on curb' for bus to re-education camp, Propaganda Ministry decrees


• Bible 'subversive', to be banned


• Five executed for forging potato-ration cards

Sadly, we're stuck in the real world where the headlines merely read "Howard humiliated" and "Libs implode". Sigh.

FRODO!!!

Private Property

I went to a private school. Although I didn't care for school life, I guess I got a pretty good education. I received a partial scholarship to my school, but even so the school fees were a struggle for my parents, and to this day I appreciate their sacrifice. My sister went to a local public high school instead, and so within our family and neighbourhood we could make a good comparison, and I think they compare well: my sister's education was far from lacking, and we both ended up at the same university.

95% of all murderers and rapists are public-school
educated. No offence, but it's true.

More and more Australian parents are following the same road. Like parents everywhere they want the best for their kids, and education more than ever is seen as the crucial first step in a successful career. I don't blame parents one iota for choosing the best school they can find and afford.

Like many others, I worry about the implications of this trend for the country. I'm naturally suspicious of any shift in control of such an area of crucial national interest into private control, and what could be more important to the national interest than our schools? I think Australia's excellent school system has been the main reason we have, for so long, been able to regard ourselves as such an egalitarian and classless society. This comment from the American experience sums it up best for me:

"Our public demonstration of elementary and secondary schools has many problems, but if we turned all education over to the private marketplace, many Americans could not even afford elementary school. Even if we used public vouchers, we would lose one of the fundamental benefits of public education - the chance for children to rub elbows with others from all walks of life. (Those who could afford to would add their own funds to the voucher and buy a "better" education for their children, leading to extreme segregation by income group). This shared experience may not be efficient, in market terms, but it is effective in making democracy work."
Osborne and Gaebler, (1993). Reinventing Government, Ch1, p. 46.

If private schools continue their expansion, then our children, from an early age, will be segregated into two distinct socio-economic groups. In many cases, the gap will not be vast, but it will be there. And it will grow. I have a picture in my mind of the sort of ethnically diverse group of kids you might see in a government advertisement, but worry whether such a picture could be taken at many private schools.

In the U.S. I saw some really disturbing trends. Public education has had a long and proud history in the United States, but there is an unfortunate bias built into the system. Schools are administered by local school boards, and a great proportion of the funding usually comes from property taxes. More expensive houses, higher tax revenue, better schools. For this reason, there is often an enormous difference in the quality of schools between wealthy suburbs and poorer, urban areas. (Another effect: In California, a ballot initiative to cap property taxes send their schools plummeting to some of the lowest-ranked in the nation.)

The U.S. is also seeing an explosion in religious ("parochial") schools. This is even more worrisome as a prospect; kids in such schools (if they are not, indeed, home-schooled) spend their formative years surrounded by only ideas and materials that have been carefully filtered to reinforce a particular and narrow religious ideology. It cannot be healthy for a mind to be shielded from competing ideas. In later life, fanaticism and intolerance can only be fostered by kids who have received such a limited education. I know - I've met them. They certainly have the courage of their convictions, out of a sheer inability to conceive that a sane person might be able to think differently.

What would I do with my own kids? It's a tough call. I don't have kids yet, and I recognize I might feel differently when I do; but right now I feel that there is real value in growing up with other Australian kids in an equal environment. If the school isn't good enough, then that's a reason to fight for better schools for all Australians, not to take my kids out of the system.

That's why I feel that Labor's response to Howard's school fees rebate should have been, "A rebate on school fees? We'll do better than that - we'll pay for your child's entire education from prep to year 12 - and we'll do it at a school in your neighbourhood!" Just enroll your child in the nearest public school near you.

More from the Department of Desperation

The following, as quoted in the SMH, is from a letter from MP Bronwyn Bishop to her constituents.

Most of us will survive the economic slide and the lower living standard but my concern is for our youth.

Our youth have never experienced a socialist government with its continuous barrage of laws, rules and regulations, the never-ending interference of government and unions in our lives and the soul-destroying unemployment as our living standard drops...

Have you ever wondered how so many members of the Labor Party have become very rich whilst in government, while workers become poorer? How do they become multi-millionaires...

It would be sad to have the old failed socialist, union-driven government influencing our youth.

It is hard to imagine the sense of panic that leads to material like this. Each one of those sentences is a pure gem of hysteria. My favorite: "Most of us will survive" implies the coming Labor economic apocalypse will claim a few lives. "Members of the Labor Party have become very rich" is simply bizarre coming from the Liberal party.

Clearly, when the Liberals are this sure they are doomed, we can have a little confidence in Saturday's outcome.

Update: The full text of the Bishop letter can be found here.

Beyond Dirty Tricks

When I lived in the USA, I was in horror at the stories I'd hear around election time. The voting process itself is a mess, and the count subject to interference from a vast array of interests - county, state and federal electoral agencies and state departments, a veritable zoo of voting methodologies and voting machine vendors.

Even worse were stories of Republican supporters delivering fliers in black neighbourhoods reminding people to make sure they didn't have any outstanding warrants when they came to vote. Reminders to vote on Wednesday (elections are held on Tuesdays). Anti-democratic tactics of the lowest order.

At least it couldn't happen in Australia, I thought. Although we have our differences, the integrity of the electoral process is important to all of us. Or so I thought. I'm aghast at today's revelations about Liberals in the seat of Lindsay - you can read about it here and here. The evidence is there in photographs - this is out-and-out electoral fraud by the Liberal machine in Lindsay. Jackie Kelly, the retiring member, has tried to dismiss it as a "chaser-style prank", a bit of "skylarking". Have a look at the flyer and make up your own mind:

(Click for larger view)

Given that Gary Clark, Jackie Kelly's husband, was caught with a handful of the flyers, her attempts to distance herself from the operation won't be very credible. Regardless of who's responsible, I hope the AEC takes this very seriously. I'm sure the Liberal party will distance itself from this "lark", but the individuals themselves have tried to subvert the democratic process and must be brought to account.

Ghosts at The Age

I've never enjoyed the AP news flashes the Age puts on the web site, but this one takes the cake.

Amusing perhaps for the footage of gullible Ohioans marvelling at the ghost, but that's not what the Age seems to be suggesting. They can't decide whether it's a ghost or an angel. Presumably this story wouldn't make it into the print edition, but that raises some questions about where the newpaper begins and ends these days.

And what the hell is the AP doing filming a gas station in Parma, Ohio and putting that on a global wire?