Wednesday, June 10, 2015

That Australian life - the Killing Season, Mr Rudd and the GFC

This morning I watched the first episode of the new ABC political documentary, The Killing Season, on the Rudd-Gillard years.  The photo shows former Prime Minister Kevin Rudd being interviewed by Sarah Ferguson or the program.

I guess that I am a political junky, so these series are always of interest to me. However, in this case I was more interested in the part of the story that related to the unfolding of the Global Financial Crisis.

I was in Shanghai when Lehman Brothers applied for bankruptcy protection on 15 September 2008. From my hotel room, I watched the crisis unfolding. It was theatre, and I'm not sure that I realised the full extent of the problem. I really should review my writings here. Time makes one's memory selective!

I guess I first became aware of the Australian impact when I read a September 2013 piece by  Elizabeth Knight: 'They came with suitcases for cash': Westpac chief. I had been surprised upon my return to Australia at what I perceived to be a degree of popular panic that seemed totally unwarranted by the country's economic position. That panic was far greater than I realised.

One of the messages that I drew from the documentary, and one that stands greatly to Mr Rudd's credit, lies in his early identification of the global problem. Here I think that ex-Treasury Secretary provides a generous and, I think, objective view of Mr Rudd's contribution. Mr Rudd identified the global significance of the sub-prime problem early, certainly earlier than Treasury, and put in place considerable worst-case planning. From memory, the word gaming  was used to describe the process. As a consequence, Australia was in a position to respond and to respond quickly as the crisis unfolded.

 As the crisis developed, Mr Rudd's strengths finally became his weaknesses. I wrote from an early point about Mr Rudd's administrative and management weaknesses, about his command and control style. That style appears to have been very important in ensuring an effective response to the GFC, but later became a growing  problem.

In all this, after watching the first episode, I am rather glad that Mr Rudd became PM when he did.
Would the opposition have one so well? I don't think so. Their ideological blinkers would have limited the response. They would have been too slow, too constrained. Australia would have experienced recession and could have suffered a bank crash.


Winton Bates said...

The Rudd-Henry story of how they saved Australia from the great recession of North America and Europe seems to me to be self-serving nonsense. Some action might have been warranted to counter the panic among bank depositors, but that is about all.

The Asian financial crisis was probably a greater threat to the Australian economy. I can't remember how the Howard government responded but the outcome for the Australian economy was pretty good.

2 tanners said...

I remember both, although I was in different Government positions. The first response to the Asian crisis was a mild satisfaction that the Asian Tigers were having their teeth pulled. It was only later that people realised that Australia was going to lose out as one of their largest suppliers.

The rapid response to the GFC was classic Keynesianism in action, for once able to work because the problem and implications were clearly defined. I think it's pretty harsh to call Ken Henry self-serving. Mr Rudd is a politician and it goes with the territory. However, when asked to list his achievements he ought to be able to point to the GFC response and say "I did that."

Anonymous said...

Winton, I respect your views, but we are faced with what happened in the real world. I think it more fair to say that we 'survived' that event - and if we always blame the pollies for everything, maybe at that time they did something approaching right?


Winton Bates said...

I don't think I have seen it argued, but I sometimes wonder whether a case could be made for The Rudd-Henry cash splash on the grounds that it was necessary to encourage the Chinese government to raise infrastructure spending. Australia certainly benefitted a great deal from the fact that China did't go into recession.

Jim Belshaw said...

Winton, this is Glen Stevens' 97 piece on the Asian crisis The main Australian response was to provide funds to affected countries. The direct economic impact on Australia seems to have been very small -

Now I'm simply going to call you on this statement: "The Rudd-Henry story of how they saved Australia from the great recession of North America and Europe seems to me to be self-serving nonsense. Some action might have been warranted to counter the panic among bank depositors, but that is about all."

Evidence please to support the assertion!

Winton Bates said...

Jim, the question at issue is whether outcomes would have been worse if we had refrained from the cash splash, school hall building projects and subsided home insulation, and borrowed a smaller amount. A revenue decline would still have occurred, so there would still have been a deficit and substantial government borrowing.
The evidence on both sides has been paraded by various people and probably isn't conclusive either way. It is certainly not conclusive enough for the Rudd-Henry view to be presented by the ABC as unquestionably correct.
One bit of evidence that you might like to consider is how the NZ economy managed to weather the financial crisis pretty well despite a much small fiscal stimulus.

Winton Bates said...

I have just re-read an article by Tony Makin which provides some evidence supporting my view. See:,+Volume+17,+Number+2,+2010/6691/makin.xhtml

2 tanners said...

Probably because the average NZ GDP per capita growth (under 1.5%) is so low it would need about almost 3% per annum to catch up to the OECD GDP per capita average and over 4% to catch up to ours by 2025. Any year we had their average growth, an Australian government would be in real trouble.

We had million dollar mansions to lose, they had cardboard boxes. But at least the government had enough money for cardboard.

2 tanners said...

I should probably add that six consecutive quarters of negative growth does not actually meet my criteria for weathering the financial crisis.

Jim Belshaw said...

Hi Winton. I'm not sure that 2T's comment quite addresses your specific point! In fact NZ does seem to have done worse that Australia and roughly the same as the US during the GFC - chart

Read your reference. I argued back in 2008 that (as compared to then Access gloom and doom)Oz was in an unusually good position because of the combination of an unexpectedly better trade performance combined with an unexpected and indeed unwarranted in the value of the Australian dollar. However, the particular reference misses several points.

The GFC came in several phases. There were very particular problems in the last months of 2008. Then in 2009, we have the attempt to accelerate capital spend. This created another set of issues. But it also gave us the first increase in social housing stock in decades.

There is a very simple test you can apply to the Makin analysis of data over the last months of 2008 and the first part of 2009. What would have happened if the Government had not acted. Based on the Makin analysis, the maths suggest that the economy would clearly have dropped into recession.

Jim Belshaw said...

Sorry, a correction. 2T did address the point when he referred to six quarters of negative growth.

Winton Bates said...

Jim, 2T
I guess the NZ ride was more bumpy than I had thought. I also thought NZ was in recession prior to the GFC, but that does not seem to be so.
I come back to my earlier point. The evidence that has been paraded about the effects of the stimulus measures in Australia is not conclusive enough for the Rudd-Henry story to be presented by the ABC as being unquestionably correct. Ken Henry deserves respect for a lot of things (most particularly the tax report that bears his name) but his performance on the ABC program seemed to me to be more what you would expect of a Labor party staffer than a former Secretary to the Treasury.

Jim Belshaw said...

I certainly didn't have that feeling, Winton, but I guess that its how you see those things. In this show, Mr Henry distinguished between immediate and later measures.