Why does Malcolm Turnbull make so many mistakes?

A man with a background like Malcolm Turnbull shouldn’t make so many mistakes.  An ex-merchant banker, Goldman Sachs manager, businessman, barrister, politician and Opposition Leader should be more perspicacious.  He doesn’t seem to understand what he’s doing.

Earlier this year he made the mistake of accusing Kevin Rudd and Wayne Swan of ‘talking up inflation’ and ‘egging’ the Reserve Bank to raise interest rates, both commonsense-defying accusations.  Now inflation is down to an annualized 3 per cent, at the top of the comfort zone of 2 to 3 percent favoured by the Reserve Bank.  So raising interest rates has had an anti-inflationary effect, even if it was not the only factor.  Rudd and Swan were right in pointing to the erosive effects of steadily rising inflation and the need to get it under control.  Now that that has been achieved, the Reserve Bank has today been able to further cut interest rates, to 4.25 percent, much below the rates during the Coalition reign of ‘interest rates will always be lower under the Coalition’. How could Turnbull not understand such fundamental financial truths?

Then he made the mistake of questioning the Government’s $10.4 billion economic stimulus package after having given it bipartisan ‘un-quibbling’ support.  Shouldn’t he have understood that such equivocation leads to erosion of confidence in his decision-making?  To justify his about-face he said he would have formulated the package ‘more astutely’.  No details were provided.  Another mistake – he expected his assertion to be accepted without question.

Then there were the mistakes he made in criticizing the Government’s bank guarantee.  It should have been capped at $100,000, it should have had a shorter duration, it would cause havoc, it has made the situation worse, Australia is the only country whose actions have aggravated the financial crisis, Rudd and Swan have no idea what they’re doing, they’re incompetent in financial management, they’re out of their depth, and so on it went – nothing they did was right.  Yet no independent commentator has shown how any of these criticisms are valid.  Some in the media have given Turnbull support, but with no justification.  How could an ex-banker make so many mistakes?  How could he be so lacking in understanding?  The guarantee seems to have worked.  Who’s complaining now?

Next he made the mistake of insisting that the Government must not go into deficit – that would be a failure in economic management.  He can’t find an economist, or for that matter a columnist, to back his aversion to a deficit, or more correctly his aversion to Rudd going into deficit.  Then he repeatedly makes the mistake of declining to say whether he would go into deficit if he was PM.  So who does he expect to give his rhetoric credence, apart from his rusted-on supporters?  More...

Turnbull’s benchmarks for failure

Dennis Shanahan was the first to use the term ‘benchmark’ in his 27 November piece in The Australian Rudd sails on perilous waters to identify the criteria of success, or failure, of the Rudd Government’s budget strategy according to the economic oracle, Malcolm Turnbull.

Leaving aside Shanahan’s applause for Turnbull’s tactical moves, he identified three benchmarks that to Turnbull would denote failure of economic management.

First benchmark, going into a deficit.  As Shanahan put it, “Malcolm Turnbull had cornered Rudd and Wayne Swan over the deficit by establishing a budget surplus as a benchmark for economic success.”  So by corollary, a budget deficit would be a benchmark for failure.  And the longer the deficit lasts, the greater the failure, according to Turnbull: "Experience and history tell us that Labor deficits are never temporary. The last Labor deficit lasted for six years. It only came to an end with the election of a Coalition government."

Next benchmark, rising unemployment.  Shanahan’s take is “...Turnbull and the Liberals are starting to frame the argument that any rise above the current 4.3 per cent unemployment rate is another benchmark for economic failure.”

Third benchmark – recession.  Shanahan ends with a prediction: “The next challenge for the Government will come as Turnbull begins to demand it keeps the nation out of recession.”

So here we have the setting of benchmarks for failure of the Rudd Government, two of which cannot be avoided, and a third that also might be unavoidable. 

Turnbull knows full well that Australia has been hit by an extreme economic storm not of its own making, that if the nation is to avoid a severe economic downturn and loss of jobs, radical fiscal measures will be needed which will likely create a budget deficit.  To not take these measures would be economically irresponsible, so knowing the Government will take them Turnbull is setting it up for economic failure by his own definition.

Regarding unemployment, last month’s forecasts for unemployment of more than 100,000 have worsened over the past three weeks.  So rising unemployment is an unavoidable given. The Government cannot meet Turnbull’s benchmark.

Finally, since ‘recession’ is an academic term for two successive quarters of negative growth, a product of the economic circumstances, over which the Government has limited control, another benchmark is looming on the horizon, one the Government would find it difficult to avoid unless it took extreme fiscal measures which in itself would create a deficit, another benchmark of failure. 

So Turnbull is trying to establish a lose-lose-lose situation for the Government, a win-win-win for the Coalition and of course himself, and seems prepared in the process to accept a lose-lose-lose situation for the nation and its people. More...

The genius in the Opposition

We’ve a pretty smart Government, but what would it be without the guidance of the genius that suffuses the Opposition benches?

Ever since the top genius was elected to the position of Opposition Leader, there has been a flood of sage advice flowing from him to the Government on all matters financial and economic to keep it on course as it works to minimize the damage to Australia from the GFC tsunami.  In fact even before that Malcolm Turnbull as Shadow Treasurer offered plenty of gratuitous guidance to Kevin Rudd, and particularly Wayne Swan, trying as he was to keep vertical on his training wheels.  One cannot blame Turnbull for offering his counsel, as, after all, he once was a merchant banker and he did make a lot of money at it.  It follows that he must be supremely qualified on all matters banking, the economy of the country, and fiscal management at a governmental level, even in the once-in-a-century circumstances that now engulf the world.  Genius knows no bounds; genius is built to manage the unusual, the unique.  And he has the ego and confidence to match his genius.

The fact that we’re all in this desperate situation because of the inspired work of banking genius in the US and indeed all around the world, the fact that US Treasury Secretary Hank Paulson, previously Turnbull’s boss at Goldman Sachs, has so far been unable to devise a solution, and has changed his mind radically in the space of a few weeks, should cause us to marvel at Turnbull’s capacity as an ex-banker to read and correct financial catastrophes.  With his obvious ability and authority, Turnbull should offer his help to Paulson, and thereby help us all.

In contrast to Turnbull’s unquestioned ability, Rudd and Swan are characterized by him as not knowing what they were doing, as incompetent on matters financial, as indeed all Labor Governments are by definition.  ‘They just don’t understand’ is an oft-repeated phrase.

Turnbull’s advice has been ubiquitous; space will not allow all of it to be captured here.  The first of the Turnbull gems came when Swan declared the ‘inflation genie was out of the bottle’. We know this was part of a strategy to diminish the financial credentials of the Howard Government, and that it was not the smartest metaphor, since genies are notoriously difficult to get back into their dwelling place.  But it was the cue for Turnbull to pounce and accuse the Government of ‘talking up inflation’, a theme to which he has returned again and again.  Neither he nor anyone else in the Opposition, or for that matter in the media, has explained how it is possible to ‘talk up inflation’, if by that Turnbull meant that talk was capable of increasing inflation.  If he meant ‘talk about inflation’ he should have said so.  It was a natural segue to go onto say that by ‘talking up inflation’, Swan was ‘egging the Reserve Bank to raise interest rates’.  Since the fierce independence of the Reserve Bank was established beyond doubt during Peter Costello’s Treasurer-ship, it’s improbable it would dissipate immediately after his exit, to the point that the Bank would be susceptible to ‘egging’ from anyone.  In any case, why would an incumbent Government want interest rates to rise immediately after its arrival, especially after the pillorying Labour suffered for years for its period of high interest rates?  So the Turnbull mantra was always fanciful, and being the smart man he is, he knows that too.  But that has been no impediment to his repeating it ad nauseam. Expect more. More...

The ‘deficit’ wedge

In an earlier piece on The Political Sword The emerging Opposition strategy I wrote that one of Malcolm Turnbull’s strategies “...seems to be to try to anticipate Government moves and pre-empt them by stating what should be done, and occasionally what he would do.  The former is preferable because several options can be offered, some of which might hit the mark and make him look prescient, whereas the latter is more risky as it commits him.”

At the National Press Club on Monday, Turnbull said "Given the strong public finances Mr Rudd has inherited and the growth forecasts we are relying on for next year, Australians rightly regard the prospect of a deficit Budget next year as a failure in economic management - an admission that Mr Rudd could not maintain a strong economy and above all could not live within his means."

So there’s the wedge.  If the Government goes into deficit, Turnbull insists that will indicate failure.   Julie Bishop has been singing the same song, saying that with the forecasts the Government has made, there is no reason for it to go into a deficit.  This is a double wedge; she is seeking also to hoist the Government on its own forecast petard.

Access Economics released a report on Monday predicting the Budget will be in deficit by $1.1 billion next financial year and around $4.3 billion in each of the following two years.  Chris Richardson explained that this would be due to diminished revenues.  But in commenting on the prospect of a budget deficit, he insisted that going into deficit would be the appropriate thing to do, and that the Government should not shy away from doing so.  Other economists agree, including Stephen Koukoulas of TD Securities who said “The case for a substantial fiscal easing is strong, even if that means the Budget falls into deficit by 2 or even 3% of GDP.” and “It would be dumb to try to keep the Budget in surplus at a time of weak growth and rising unemployment.”

Yet despite that advice, which with his background he must understand, Turnbull is pressing on with his wedge to gain political advantage even if that is at the expense of good economic management.

Wayne Swan is backing Treasury forecasts: Swan sticks by surplus forecast  "The official forecasts of the Commonwealth are for modest growth and modest surpluses but there are always differences when there are private sector forecasters out there. We are projecting a modest surplus - Access is not. There is simply a difference in the forecasts when it comes to the revenue."  The message is similar from other ministers.  The Government is determined not to be wedged on this issue.  But the large deficit left by the previous Labor Government, which the Coalition exploited politically for its entire time in office and beyond, has become somewhat of a bogey for Labor.  This is not without good reason; Monday’s Newspoll figures showed that 56 per cent of those polled would be concerned if the Government were to fall into deficit due to further spending. More...