Economic Populism: A Minefield For The Liberals

It’s an odd sight to see the Liberal Party push for more regulation of the finance industry.

Joe Hockey said yesterday the Coalition would push for an inquiry into the finance sector, because the banks are “out of control”.

He has a big, bold plan – full of additional powers to regulators, increased scrutiny of bank profits, cracking down on what seems to be risky behaviour, and enlisting Australia Post as an outlet for small lenders. That’s a taste: it’s got nine points. The details will be earnestly debated.

Nevertheless, it seems strange to announce a policy two months after an election with more detail than most of the policies you took to the election.

And having banged on about the Rudd government’s never-ending series of inquiries, the opposition is now calling for one itself.

But, remember, last week Hockey was saying the government should regulate home loan interest rates. It can’t be a coincidence.

Politically, Hockey’s proposals are less about managing risk in the finance sector, and more about being tough on banks. Being tough on banks is very popular.

And as much as Hockey dresses it up, that popularity has nothing to do with the bank’s government guarantees, or the four pillars policy which makes the sector into a quasi-oligarchy.

According to a Galaxy poll commissioned by the Institute of Public Affairs in July, 59 per cent of voters want a super-profit tax levied on banks.

All treasurers and shadow treasurers love to threaten lending banks every time the Reserve Bank lifts interest rates. Afraid of criticising the Reserve itself – that would be an unsportsmanlike violation of central bank independence – the Big Four are fair rhetorical game for politicians wanting to demonstrate their concern for middle Australia.

Kevin Rudd once famously told Westpac to “have a good hard look at itself” after a rate rise. As hard as they try, moral suasion and confrontational language do not change household mortgage payments.

So banking is not well-loved.

Yet Hockey’s intimation last week that he wants to limit interest rates increases was not met with wide acclaim.

One colleague, mistaking it for a Greens proposal, called it a “lunatic, fringe-type” idea. Malcolm Turnbull took a different, but much more hurtful, tack. He adopted a tone of naive confusion, before belatedly backing the shadow treasurer.

Wayne Swan blusteringly compared Hockey to Hugo Chavez, as if his counterpart was one step away from shutting down critical television stations. And every second press article claimed Hockey’s views were a direct repudiation of the Liberal Party’s “free market principles”.

I put that phrase in quote marks because that’s where it gets tricky.

Hockey’s push against banks clearly illustrates the Liberal Party’s uncomfortable balancing act. In opposition, it flirts with economic populism, but can’t quite bring itself to travel down that dark road.

We saw this play out a fortnight ago as well. Shadow finance spokesman Andrew Robb started to talk about using the levers of government to modify our exchange rate. As colleagues publicly proclaimed their confusion, Robb backed away from that one too.

Now both Robb and Hockey are searching around for legislative mechanisms to achieve policy goals that a) don’t get them branded as economic interventionists and b) don’t sound idiotic.

It’s all about finding the right “levers” – a strange word which seems to imply that governing is like running a factory for the first time. Robb and Hockey seem to be hoping there are levers the previous factory owners didn’t know about.

Of course, there are none. Hence the policy confusion of the last two weeks.

In a way, Labor had the same problem. They went to the 2007 election promising to ease cost of living pressures. But there really wasn’t anything Labor could do about prices at the supermarket and bowser; Kevin Rudd settled on the feeble GroceryChoice and Fuel Watch instead.

The Liberal Party has a harder time at this cheap economic populism, because they’re supposed to be, well, “liberal”. Certainly, on balance, the Liberals tend to favour more market oriented solutions to policy issues. And often the party leans towards smaller government than the Labor Party. They usually oppose more regulation, and propose more tax cuts.

But we can all think of dozens of exceptions to the Liberal Party’s free market inclination.

The purpose of a political party is to get elected. And the free market approach to public policy is an unpopular one. This is true across any number of policy areas. If the great financial reforms of the 1980s had gone to a referendum, they would have been rejected. A party that cuts the size of government usually cuts the size of their approval ratings.

Voters are hypocrites: they hate bureaucratic busybodies, but want government to solve their problems. They think there are too many laws, but think there should be a law to fix everything.

Obviously, it’s an ideological minefield out there.

If the last two weeks have shown us anything, it’s a minefield Joe Hockey and Andrew Robb are struggling to navigate.