Thought provoking piece on inflation from Nicholas Stuart #ausecon #auspol I do not endorse the personal comments in it.

Treasurer unable to articulate how things will get better

By Nicholas Stuart, Canberra Times April 28

Watching Julia Gillard's certain progression from misstep to trip-up has taken on an inexorable fascination. It's a new game: what will go wrong next. Even when she travels overseas the shambles at home pursues our PM.

It hardly seems worthwhile writing about Peter Slipper. Or Craig Thomson. Or disendorsed South Australian Liberal MP Patrick Secker who may, or may not, be prepared to defect and take up the speakership himself. It seems our parliamentarians' moral compasses are oscillating more wildly than anyone thought possible. Yet, amidst all this chaos, the PM still clings to the idea she has a plan. Gillard insists, for example, that she did the right thing by installing Slipper as speaker. She asserts he'd ''enabled the government to do some important things''.

Never mind the means; concentrate on the ends. Integrity is jettisoned on the route to achievement. Of course, only prissy pedants would be concerned about this if we were being governed effectively. But people aren't happy, and it's the economy that's the real key to understanding Labor's sinking fortunes. Forget everything else, even the noise accompanying Tony Abbott's attempt to visit every voter in the country, peeling prawns and opening women's shelters. The reality is that the economy has vanished down the chute and that's what's stuffing the government. Think back to the chaos of the Howard years. The only election Labor came close to winning was the GST election of 1998. And why? Because they ran a scare campaign targeting the hip pocket. And why were the Liberals reinstalled election after election? Because house prices levitated into the stratosphere and people ''knew'' they were better off. Kevin Rudd tried sending out cheques to the electorate. Unfortunately, the quick buzz engendered by spending the dough didn't provide him with the long-term support of rising property values. All through the Howard years one thing never stopped going up, and up, and up. The price of houses. It provided comforting reassurance to anyone who owned property that they were actually investment geniuses. People moved up and down the property ladder, funding the states as they did so through transaction fees, and counting their imaginary profits on the way. The economy was moving. The gains (because ''property never goes down'') engendered greater confidence throughout the economy. Now it's stagnant. This is why, when historians attempt to attribute responsibility for Labor's downfall in the years to come, they'll increasingly focus on Wayne Swan's inability to establish the terms of the broader economic debate. Lots of people aspire to the A-league but not all make it. Unfortunately, Swan should have been relegated long ago. His main crime isn't the mire into which our economy has sunk. Most critically, the one-time TAFE economics lecturer has lost any ability to influence the public debate. He's unable to articulate confidently how things will get better. And it's becoming difficult not to suspect that the reason for this is that he actually doesn't really know how to get the economy moving again.
The reason for this is simple. It can be summed up in one word - inflation.

This is the big bogey of any good conservative for an obvious reason. Inflation stimulates dynamism. It encourages entrepreneurs to take risks, because they know losses from mistakes will be eaten up, consumed by rising prices. It thrusts energy into the economy. Anyone who stands still is actually going backwards. There's a growing body of economic theory that insists an inflation rate of up to 5per cent (not more) is actually necessary for advanced industrial society to function.

Quashing inflation, on the other hand, stifles growth. Stolidity is the refuge of the unimaginative scoundrel who's inherited their money and doesn't want to risk it in anything that might engender the slight chance of making a loss. That's why, today, bank shares are going up while no one wants to invest in productive enterprises for the new century. It may seem surprising, but banks don't actually make anything - they are just there to facilitate other businesses. Yet, in modern Australia, the ''banking sector'' has taken on a driving role. This goes quite some way to explaining why the economy's struggling. Peter Costello etched this economic doctrine into stone. By pretending the Reserve Bank is ''independent'' and giving it the key goal of stomping on inflation, he created the conditions to ensure that, eventually, at the moment funds were really needed to kick-start the economy again, the bank would instead smother growth. It's doing that now. Bizarrely, the incantations of the bank's high priest, Glenn Stevens, are seemingly so powerful that his smoke and mirrors bedazzle even young economics writers. ''Don't let the worry warts convince you that low inflation is anything but good news,'' one columnist proudly announced this week. She's talking rubbish. Different times require different policies. It's the same as insisting that someone on life support should get out of bed and do an energetic five-kilometre run because that's what fit people do. Different conditions require different therapies. High inflation during a slowdown is actually quite helpful. But Swan's not out there proclaiming orthodox economic theory. There's none of Paul Keating's verve and lan emanating from the current Treasurer. Instead he's abandoned the field, outclassed even by Joe Hockey's worthwhile intervention last week from London. Hockey realises there's a need to change the basic economic settings, although he was quickly stamped on by his lacklustre fellow-travellers for telling the truth. Instead of using this as an opportunity to reframe the debate, Swan returned to the battle-lines of the past.

Meanwhile, the depressing litany of financial statistics continues, and that's the real reason Labor's going to lose the coming election. The engine room, the powerhouse that determines if a government will be returned at the next election, is the economy.

Anything else is just smoke and steam. And, unfortunately for Gillard and her hapless Treasurer, the locomotive is stuffed.
Nicholas Stuart is a Canberra writer.

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