Rudd's politics

PM Rudd loves the dramatic gesture that has symbolic effect - 'apologising' to aboriginals for the claimed sins of our ancestors, ratifying the soon to be irrelevant Kyoto and, last weekend, posing for that inspiring snap of himself - shirt sleeves rolled up - 'getting down to work' with Ken Henry.  A man of action!

Unfortunately since his strength is pretence his policy making powers are unlikely to be strong. That Rudd is a pretender is widely recognised so that Rudd himself is now taking steps to be seen as a 'man of action' not words.  It is however far better for Rudd to be symbolic and inactive* however since we have to live with the consequences of his daft actions.

Rudd's worst policy since taking office is to weaken the incentives for individuals to take out private health insurance - it is estimated 492,000 will cease to privately insure. This policy reduces the availability of health resources in the community including access by the poor to such services.

But pretenders face real difficulties in times of crisis when cool heads not dramatic flourishes are called for.  The single major policy action Rudd has taken in relation to the current financial crisis has proved to be a hasty ill-considered disaster.  The Wall Street Journal gets it right:

World leaders scrambling to rethink financial regulation might pause to consider Australia, where a poorly conceived policy has gone from beggar-thy-neighbor to beggar-thyself in two weeks flat.

On October 12, Prime Minister Kevin Rudd announced that government - read: taxpayers - would fully insure 1.2 trillion Australian dollars ($741 billion) in deposits held at eligible financial institutions such as local banks. The move was meant to cut the risk of capital flight to other countries that had adopted or expanded such guarantees in preceding days.

Mr. Rudd's move had an effect, but not the one he intended. Depositors big and small immediately moved funds from uninsured to insured savings vehicles. Branches of foreign banks and mortgage unit trusts - a breed of mutual fund that invests in prime mortgages - were particularly hard hit. Some managers of uninsured investment funds have frozen withdrawals temporarily to stanch the outflow, a blow to retail investors who suddenly find they can't access their principal.

The Rudd government backtracked on Friday, capping the deposit guarantee at A$1 million and including foreign banks with branches in Australia in the program. It's an embarrassing reversal for Mr. Rudd and might have been prevented with a little forethought. While the opposition Liberals had proposed an A$100,000 cap when the idea for deposit insurance first surfaced this month, Mr. Rudd unveiled his proposal with no advance warning and no formal debate.

Perhaps Mr. Rudd felt global events warranted swift action. But now, having insured in haste, Canberra is forced to repent at leisure. At least Mr. Rudd is providing his peers around the world a valuable lesson: A financial panic doesn't suspend the law of unintended consequences.

Moreover, the prior evidence from the move by Ireland to unconditionally guaranteed bank deposits was widely recognised to have the types of adverse incentive effects that the Rudd scheme has had. European governments were furious with Ireland since funds drained from their banks to those deposits with protected status in Ireland.

Australians elected Rudd on the basis of a bland mee-tooism to replace the most effective Federal government Australia has had in decades. As a nation we will pay a price for this foolish adventurism. My confident preduiction is for more dramatic flourishes and more ill-conceived policies.

* I take the same view with respect to many (not all) university bureaucrats with their elaborate destructive schemes to improve scholarship and teaching in universities - matters they typically have limited expertise with.  If universities are unwilling to scrap these positions put those concerned on permanent holiday status. They will do less damage.