Rudd pays for avoiding recession

Years ago a central banker explained to me that, in his bank's efforts to keep the economy from being blown off track, it was never a good thing to be too successful. Really, I said, why not? Because if you're too successful at eliminating evidence that the economy had a problem, it won't be long before people are questioning why you took the steps you did when, clearly, there was never a problem.That's the position Kevin Rudd finds himself in today. The great achievement of his first term has been to keep the economy from falling into severe recession as most other developed economies have, even New Zealand.Despite all our fears a year ago, we ended up suffering the shortest and mildest of recessions. The worst of it was that some prominent finance companies collapsed, the economy contracted for just one quarter and the rate of unemployment rose by just under 2 percentage points.Obviously, Rudd had a lot of help - from the Reserve Bank and the alacrity with which it slashed interest rates, from the good shape of the budget he inherited from the Howard government and from the rapid bounceback by China and our other Asian trading partners.Even so, it would be churlish and disingenuous not to give Rudd great credit for the size and speed of his stimulus spending and, importantly, for the way he managed business and consumer confidence.By pumping out money so quickly, he kept the economy from falling into a vicious circle in which slowing spending and rising unemployment frighten households and businesses and cause them to tighten their belts another notch, leading to further cuts in spending and job layoffs, and so round and round.But disaster has been averted, and many people are convinced there never was a recession, so we have the luxury of looking back on some decisions that were made in the heat of the crisis and questioning their wisdom.I've lived through enough deep recessions to know how black the public's mood becomes and how bitterly critical people are of the government's failure to avert the recession and do more to end it. This time, because we don't have a recession to worry about, lesser problems fill the vacuum.It's not against the law to want to have your cake and eat it, and voters do it all the time. Indeed, the politicians have inculcated such magical thinking by the way they keep promising to do wonderful things for us with no mention of the costs involved.In truth, everything governments do has advantages and disadvantages, benefits and costs. Now we've had the benefit of Rudd's stimulus spending helping to keep the downturn so small, we can complain about its cost.We can fret about the big budget deficits and the accumulated debt needing to be repaid over the next five or 10 years. All this hangover and we didn't even have a recession.As we've seen, a big part of the government's success was the speed with which it got money into the economy, which caught it before it began to unravel. Leave it too long before you start spending - as we did in the recession of the early 1990s - and it does far less good.But getting money out the door quickly comes at a cost. You don't get the leisure to plan carefully how the money will be spent to extract maximum benefit from every dollar. So you don't get much flexibility and, in the end, some proportion of the money is misspent.With the school building program - which, notwithstanding its obvious political advantages to the Rudd government, was aimed at reducing slack in the building industry and doing so evenly across the nation - schools were given a narrow range of options to pick from, no scope to customise the building and no chance to conduct a more leisurely tender process.With the home insulation program - which was aimed at creating jobs for less-skilled workers while also creating greater energy efficiency - a huge amount of money was dumped into a small part of the economy on the assumption that existing safety laws and standards, combined with the vigilance of consumers, would be sufficient to guard against shoddy work.It's likely, in the vast majority of cases - 95 per cent or more? - that work was performed to an acceptable standard. But then human nature - in the form of our greater interest in bad news than good - took over and the tiny minority of bad work, with some of it leading to fires and even deaths, received so much publicity as to leave many people with the impression the whole program was a giant waste of taxpayers' money.Whenever the second-guessers of talkback radio get involved in evaluating stimulus spending, the goal of preventing the economy's collapse is forgotten and the only criterion is lasting, physical benefit to the community.But if that was the sole objective, the only spending would be on major infrastructure projects and the effect on employment and the economy generally would come far too late to ease the recession. In Paul Keating's belated One Nation stimulus package of February 1992, one of the projects was the Anzac Bridge. It wasn't completed until December 1995.Another human quirk we see illustrated in this episode is that sins of commission are punished a lot more heavily than sins of omission. The less you do, the less you'll be criticised. But it's probably truer to say whichever way you jump you'll be criticised.If all this has made you feel a twinge of sympathy for Rudd, resist it. Had the roles been reversed, he'd be mounting just the same cheap criticisms of a Liberal government.In any case, incumbency brings a party huge advantages. This is just one of the few disadvantages.Ross Gittins is Fairfax's economics editor.Source: https://www.smh.com.au/federal-politics/political-opinion/rudd-pays-for-avoiding-recession-20100302-pg6o.html