JERRY ROBERTS.   The Real World

Jan 17, 2018

A streak of idealism runs across the pages of Pearls and Irritations. That is good.   Political comment without idealism is mere gossip but what are the chances of fulfilling ideals in the real world?  

A year or two before the onset of the Global Financial Crisis I bought a copy of The Australian newspaper at Perth airport to read on the two-hour flight to Port Hedland. The Australian was still readable in those days. The article that caught my attention was written by a Wall Street insider who had held a senior Treasury post during the Presidency of Ronald Reagan. He wrote that there might be half a dozen people in the whole, wide world who understood the derivatives trade being conducted by Wall Street financiers and he estimated there was a 60 per cent chance the whole show would blow up.

That’s from memory. I wish I had cut out the story and put it on file and I dare say I could find it if I forked out for the Australian’s paywall but I wrote about it at the time to colleagues in Perth, observing that Rupert Murdoch was taking out insurance in case the market melted down and his mates asked him why he had not warned them. Then he could point to the published story from the former Reagan official.

After these prophesies came to pass Hollywood took up the Wall Street story. I have not seen the more recent Brad Pitt movie called “The Big Short” but I was watching telly one night when “Margin Call” appeared on the screen. This is a ripper of a film starring Kevin Spacey as a banker with a conscience (no kidding). Demi Moore plays the sacrificial lamb (a well-paid lamb) and Jeremy Irons is the chairman who drops into the office in the early hours of the morning via the helicopter pad on the roof after a mathematician on staff discovers the equation used to calculate risk isn’t working and the bank is broke. The chairman decides this is the big one and the survivors will be the bankers who run out the exit door first. The traders are ordered to sell everything as quickly as possible that morning before their clients realise they have been quacked.

Official confirmation of the story came when the chief executive of Goldman Sachs appeared before a Senate Committee and admitted that he had sold clients securities not worth a cracker. He even admitted that he had been a naughty boy but he was not sent to the electric chair, the lethal injection room, the pet food recycling plant or wherever America sends the bad guys. Instead he popped up in Australia, striding down the streets of Sydney, filmed by Australian cameramen. What went wrong with our Australian Border Protection security force? How did he get into Australia? Why was his plane not re-directed to Manus Island or Cambodia? Don’t we have enough home-grown reptiles in Collins Street and West Perth? When it comes to descriptions of Goldman Sachs it is hard to go past Rolling Stone magazine.

“A great vampire squid wrapped around the face of humanity relentlessly jamming its blood funnel into anything that smells like money.”

Now The Australian Financial Review is taking out some Murdoch-like insurance. To its credit, the Fin Review on 9 January and 12 January published articles by Stephen Roach and Barry Eichengreen. These are big names in economics. Roach is at Yale and is a former chairman of Morgan Stanley Asia. Eichengreen is a professor at Berkley. I am an amateur in this territory, neither an academic economist nor a Wall Street whiz, just a mild-mannered reporter. I try not to get out of my depth in economic arguments but there is a smell of common sense in the Roach and Eichengreen comments.

Stephen Roach warns that today’s complacency in financial markets is likely to be disrupted this year through unresolved issues that are systemic in origin. “The world is set up for the unwinding of three mega-trends – unconventional monetary policy, the real economy’s dependence on assets and a potentially destabilising global savings arbitrage. At risk are the very fundamentals that underpin current optimism. One or more of these pillars of complacency will, I suspect, crumble in 2018.”

Barry Eichengreen writes that the Americans have cut taxes at the worst possible time, leaving no room for stimulus when it is needed. Because recovery has been so slow there is little room for monetary easing. “Instead of stimulating the economy in the next downturn, the Republicans in Congress are likely to respond perversely. As revenues fall and the deficit widens even further, they will insist on spending cuts to return the debt trajectory to its previous path …. A storm will surely come and when it does we will be poorly prepared for the deluge.”

Eichengreen notes that federal austerity measures will put further pressure on State legislatures and weigh most heavily on people already battling, of whom there are tens of millions in the USA. Who represents these people politically? Not the Democratic Party. Hillary Clinton called them “deplorables.” She represents upwardly-mobile college girls dreaming about crashing through glass ceilings. The women who voted for Donald Trump — and who will continue to vote for him despite the time-wasting rhubarb about Russian spies – have never heard of glass ceilings. Their plaster-board ceilings are falling down on their kitchen tables because they can’t afford to mend the roof because their blokes don’t have a job because their jobs have been exported overseas to squeeze out higher profits for the shareholders and even fatter salaries and bonuses for their repulsive executives.

We all have views about what makes the world go around. Because my view is ideological I see politicians as puppets on strings pulled by long-dead philosophers. This displeases politicians who think they are clever and important people, despite all the evidence to the contrary. It also displeases economists who look up from their equations long enough to mutter about conspiracy theories. It was not a theory, unfortunately. It was a conspiracy and a successful one. The principal plotters were Friedrich von Hayek, who dropped the aristocratic “von” from his name in a gesture to democracy, and Harold Luhnow. Hayek had the brains. Luhnow had the money. It was not his money but he financed Hayek through his trusteeship of the William Volker Charitable Fund in Kansas City. Whether he acted legally in using Volker money to play politics is a moot point. One would have to study the deeds of the trust. Anyhow he got away with it.

The bombing targets selected for destruction by Hayek, Friedman, Stigler and their followers were, and still are Roosevelt’s New Deal and Keynesian fiscal policies for full employment. As readers may have noticed, I am in the Keynesian-Roosevelt New Deal camp. John Quiggin and Henry Farrell kicked off a fascinating discussion in the International Studies Quarterly when they speculated on why governments moved quickly to adopt Keynesian stimulus programmes when the Global Financial Crisis struck in 2008 but were then steered back to the fresh water of the Great Lakes and policies of austerity. Paul Krugman responded with a wry comment on the initial success of the Keynesians.

“If your view about policy is mostly that government shouldn’t do it, it’s possible to write two articles a month saying that, and if you’re Milton Friedman you can carry it off and get a larger audience but …. It’s harder than it is to be weighing in on stuff the government should be doing.”

It was the issue of international balances of trade and payments that occupied the great mind of J.M. Keynes perhaps more than any other problem on his way to Bretton Woods. As a mild-mannered reporter I’m wondering if today’s brilliant minds might re-think this subject. The wild man of Australian economics, Professor Bill Mitchell of Newcastle, turns the air blue on his “billy blog” when he criticises Germany’s beggar-thy-neighbour export policies. He calls Germany “ a most dangerous and ridiculous nation.” The Bretton Woods system fell apart in the 1970s for reasons still debated, although the Vietnam War must have had a lot to do with it. Among writers I read last year, Yanis Varoufakis described Bretton Woods as “grandiose” and Mervyn King dismissed the concept in today’s world because there are just too many countries to make such a system manageable. The problem won’t go away.

Back in Melbourne the political scientist Allan Patience (3 January)  sees the Liberal and Labor Parties having spent so much time soaking in fresh water economic policies that they don’t know whether they are Arthur or Martha and he pins his hopes on the Greens to lead us to the promised land. I watched Richard Di Natale’s speech to the National Press Club and he was terrific until he said that one of his proudest moments was the time he led the Greens in their walk-out from the Senate Chamber as Pauline Hanson commenced her speech.

It was a spectacular, childish example of the holier-than-thou attitude that puts a lot of us off the Greens. It certainly puts me off. I switched off the TV before I threw a brick through the screen. The Greens and all the other Parties need to speak to Pauline Hanson, listen to her and, moreover, listen to the people who vote for her. The difference between Pauline Hanson and all the other politicians in the Parliament is that Pauline is a charismatic individual and a naturally gifted politician.

It is difficult to argue with Allan’s point about the major parties. Australian politics is like Australian Rules football. One team assembles perhaps a slightly more talented list of players and has a clean run with injuries. The coach manages to keep the players out of the pubs and night clubs and out on the training track and the team survives the long, bruising season and takes the flag. Next year another team holds its act together and wins the premiership but both teams are playing the same game and nothing changes.

Paul Frijters (21 June 17) advocates the formation of a new centrist political party to fight corruption. Left of centrist in my opinion. The centre has gone so far to the right in my lifetime that Bob Menzies and John Gorton would be regarded as socialists. Paul sets a monumental assignment in a country where people take no interest in politics and are besotted with televised cooking contests and bathroom renovations.

It is likely Labor will be in office in Canberra next year or later this year. Bill Shorten and Chris Bowen campaigned so well on Medicare at the last election that I think Labor would have won had it not been for the change in Presidency of the Australian Medical Association from the bolshy Brian Owler to the conservative Michael Gannon.

Our best real-world hope is that a respectable working majority will give Labor ministers confidence to go forward without constantly looking over their shoulders to see if they are offending Rupert Murdoch or Uncle Sam. It is a faint hope.

At the local supermarket in Port Hedland I ran into our Upper House representative who is a Minister in the WA State Government. He passes my test of the most important qualification for a Member of Parliament. His heart is in the right place. I’m a member of the ALP and I explained to the young Minister that blokes of my vintage support Labor for reasons that are sentimental, not rational. It is the Party of Curtin and Chifley. We like to think that the last 30 years of market deification are an aberration and we like to hope that the Party will recover its social democratic heart. That too is a faint hope.

The excuse of rusted-on Party loyalists is the same as the comment from one-eyed football supporters. “Our blokes aren’t much chop,” they say. “But the other mob is even worse.” That is not good enough.

Jerry Roberts is a former parliamentary reporter.

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