Wednesday, October 29, 2008

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.


Anonymous said...

The deposit insurance policy is quite possibly the worst policy making I've seen in 20 years.

Not suggesting it shouldn't have been lifted at little but what Rudd and Swan have done is beyond dumb.

this policy will cost us $100 billion when the bill finally comes in.

Anonymous said...

Another day, another dollar, as it were.

Here at Casingbroke Manor we start the day at 11am NOT by scanning the world's news media but by going straight to Harry Clarke's blog (at one time called "Kalimna" but because naming it after packaged alcohol would have sat ill for a commentator who is now proscribing fun drugs - the alky name had to go, obviously).

It never fails to amuse us uproariously. Each day is a joy as Harry vaccilates between neo-Veblenianism, and re-embracing mummy Rational Action Theory.

Just to remind viewers, this is what Harry write only last week:

"this ... (Kevin's move, he now so splenetically condemns though largely courtesy of the WSJ)... is primarily directed at stopping runs on small non-bank lenders in Australia should there be a 'rush to quality'. Of course for the moral hazard reasons mentioned by Buiter this should - at best - be a short-term measure... the Rudd scheme also apparently includes a guarantee on interbank lending which is one of the sensible points on Buiter's list. This will restore trust and encourage lending that will free up paralysed capital markets."

I thought I had detected a failure of nerve there for a while, but I can see you've come to your neo-con senses, H. One imagines a late-night phone call, a halftime-style coach's pep talk from a war room deep under Russell Hill, perhaps: "Don't go wet on us now, Clarke..."

I approve wholeheartedly hopping into politicians, especially ones as up themselves as Kevin, but praising John Howard in the same spiel tends to overegg the pudding.

Howard was the worst prime minister Australia has ever had. History will be no kinder to him than it was to Billy Snedden nor Billy McMahon. Indeed, they did no real harm. Howard will live on in people's memory as the man who gave us the Really Really Huge Depression we didn't have to have.

The proof is in his policy of "wealth creation" - the thing he said on the day he was kicked out of office he was most proud of - that he has now bequeathed us. All that wealth has disappeared in 14 days.

Yet what lingers is the memory of Howard's hypocrisy, self-serving lying, politicisation of every federal institution he could lay his hands on, from high court, to governor general and the federal police, myopia, xenophobia, cowardice, Byzantine scheming, constant appeals to the lowest common denominator and above all, rank stupidity.

hc said...

Sir Henry, Cut the snark. The comments I made then - moral hazard difficulties, the fact that guarantees on interbank lending accorded with Buiter criteria of freeing up interbank lending were accurate. As were the comments today - The Coalition policy for a $100,000 limit would have worked better.

Why didn't Rudd consult with the RBA on such an important issue? It is clear they had reservations. Why not get the best advice on such a significant reform.

Throwing many people who can afford to pay for health insurance back onto the public system puts increased pressure on an already overutilised public system. Again the Coalition opposed the move and all the fools in the Labor Party could say was that they were preventing a tax cut. Pathetic.

The rest of your post says that you don't like John Howard. well good for you. But it does not change the fact that Rudd hass taken two very poor policy decisions with big social costs.

Anonymous said...

What social costs? To whom? Malcolm Turnbull? And what if there was no guarantee and there was a run on the banks, what would you have said then?

Hindsight is a wonderful thing, it's a shame you didn't say all this at the time although you had the opportunity.

On balance, it was a sensible decision and on Treasury's advice. Most viewers out there in TV land think the way I do: Kevin's standing in the polls has never been higher.

By the way, what's a snark? Sounds like something Lewis Carroll invented.

Slim said...

"PM Rudd loves the dramatic gesture that has symbolic effect - 'apologising' to aboriginals for the claimed sins of our ancestors..."

I wonder if you've been watching First Australians - the most eloquent and clearly articulated account of the Aboriginal experience of Australian history to date. No wonder the Howardians were so keen on the Culture Wars.

I, for one, am glad of Rudd's dramatic symbolic gesture, for it acknowledges the symbolism shown by white Australians towards the Aboriginals for more than two hundred years - that they were an inferior race of primitive people who needed to be bred out of existence as quickly as possible. Now that's what I call symbolism.

Anonymous said...


He took advice from the RBA. It was the same as Treasury.
did you not follow Ken Henry's attendance at the Estimates committee.

I am surprised you support compulsory taxation to support a sector.

hc said...

Anonymous (you should use an identifier):

Tax penalties to induce people to make people take out private health insurance make sense if you have a public health system that provides many services at zero cost.

I do not favour universal free health services but I believe that all people should have access to health care irrespective of low income.

Hence taxing wealthy income earners if they don't take out private health insurance can be a simple alternative to means testing access to the health system.

Labor policy here is particularly idiotic because it harms the very people they claim to be looking after.

Anonymous said...


Anon is Homer, by the way. I can smell them reprobates language from a mile away.

Ignore him.

Anonymous said...



cristop5 said...

Similar procedures cost more under the private than under the public health system. Therefore we get better value for money paying for public health with taxes/levies than paying for private health with premiums.The argument for private over public health must therefore be ideological rather than economic.
The private system has lured resources and skills away from the public system, and is a device for queue jumping rather than a way to shorten queues.

hc said...

cristop5, Why would people pay extra to get the same quality service? They assume private treatment is better quality - that's why they pay for it. Ditto schools ....

Or are you just making the judgement that the contrary is the case and that your judgement should be forced down people's throats via an exclusively public system?

Private doctors paid for from insurance privately undertaken costs the taxpayer nothing.

It also means that people can select their own treatment options. Its called 'free choice'.
In so far as this choice promotes competition between the sectors it is good.

Anonymous said...

Harry> Why would people pay extra to get the same quality service? They assume private treatment is better quality - that's why they pay for it. Ditto schools ....

Chris> This is my point. If the private system is better, that is because it has drawn skilled practitioners from the public system, to the detriment of the public system. It is not some new, better creation – just a glossy, more expensive version of the public system. Many doctors work in both systems doing the same procedures, but inevitably charge more when operating privately. When they have enough private work, they leave the public system to go private full-time. So the procedure now costs more. I don’t see that as a good thing.

Harry> Or are you just making the judgement that the contrary is the case and that your judgement should be forced down people's throats via an exclusively public system?

Chris> I’d prefer the ‘default’ system, if you will, to be public. I don’t want taxpayers to have to subsidise private health care in any way. By being taxed extra for not going private, I certainly feel that private health care is being forced down my throat!

Harry> Private doctors paid for from insurance privately undertaken costs the taxpayer nothing.

Chris> I’ve never understood why someone would begrudge paying taxes for health care, when the alternative is to pay more through insurance premiums. I think for some there must be different ideological connotations attached to the words ‘tax’ and ‘premium’, whereas for me they are just two different ways of paying for a service.

Harry> It also means that people can select their own treatment options. Its called 'free choice'.
In so far as this choice promotes competition between the sectors it is good.

Chris> Harry I’m not sure what you mean regarding selecting treatment options. I would have thought choices will firstly be guided by medical advice and administrative policies, but then constrained by resources - in both the public and private systems. Could you give a couple of examples of new choices we would have if we all went private?

Regarding competition, sure it occurs between private health providers – they are all profit-driven businesses playing by the same rules. This does not really apply to private versus public however. The public system must try to treat all comers, and has to deal for example with long-term patients whose private cover has run out.

I appreciate your blog it has obliged me to articulate my misgivings about Australians having private health forced upon us. I think that there is a fundamental conflict between the ideal of universal health care, and the drive to push more and more people into the private system. It’s fine that more money can get you a better car or whatever, but should it allow you to get your cancer removed ahead of some similarly sick but less well-off sufferer?