The GFC Debate We Never Had

Almost as soon as the initial trauma was over, the Australian political class repressed its memories of the Global Financial Crisis.

It has been four and a half years since the Rudd government announced its flagship $42 billion Nation Building and Jobs Plan, in February 2009.

This was a big deal at the time. Kevin Rudd declared neoliberalism over. Keynesian stimulus spending was back.

But within 18 months, the two men that had fought the political contest over this extraordinary stimulus package, Kevin Rudd and Malcolm Turnbull, had been dumped by their respective parties.

Others followed. Lindsay Tanner, easily the most economically credible leader in the Labor government, left politics. Another key figure, Treasury secretary Ken Henry, retired the following March.

The survivors of Labor’s kitchen cabinet, Wayne Swan and Julia Gillard, stopped talking about the crisis. They made a few vague and defensive claims about having saved the country, but the Rudd years were apparently too painful to go into detail. Tony Abbott did not ask them to elaborate.

So little is remembered about the Australian response to the GFC other than a couple of iconic phrases. Pink Batts. School halls. Labor debt.

Flicking through the best book published on the episode – Shitstorm, by Lenore Taylor and David Uren – is like entering a lost world. Who now recalls the panicked ban on short selling, imposed just a few days after the collapse of Lehman Brothers? Or the sudden prominence of a usually obscure regulator, the Australian Prudential Regulatory Authority? Or Australia’s attempt to make the G20 the centre of international economic diplomacy?

The return of Kevin Rudd is the return of the spectre of the Global Financial Crisis.

In his first press conference on Friday, Rudd recounted the moment in September 2008 when it looked as if the American Insurance Group was about to collapse. He called George Bush to lobby for the firm to be bailed out.

It was conspicuous anecdote, and a deliberate one.

Then Rudd challenged Abbott to a debate on debt and deficits. That is, the debt and deficits incurred because of his government’s massive stimulus spend nearly five years ago.

His new team has suggested the election is likely to be delayed until after the G20 meeting Russia in early September. Not only is this very same G20 that Rudd extolled in 2008, but he cheekily asked Abbott to accompany him to Saint Petersburg.

On Thursday in Parliament, Pink Batts and school halls were the Coalition’s first lines of attack against the reinstalled prime minister. They were used as they have been over the last few years: placeholders for the ideas of waste and incompetence. But Pink Batts may not be as compelling in Saint Petersburg as they have been on Sunrise.

During the Gillard years, conservatives and free marketeers were lulled into a belief they won the debate over Keynesian stimulus. The insulation program was a small part of the total package, but, since it was implicated in the deaths of four people, has come to define it. And Swan’s inability to get the budget out of deficit has been a massive political liability.

Yet two facts remain. First, the government said it was spending a lot of money to stop the economy going into recession. Second, the economy didn’t go into recession.

Whether one led to the other is moot. Most people believe they did.

In late 2011 an Essential Poll asked who should lead Australia if there was another global financial crisis. Kevin Rudd topped the list at 24 per cent.

Another poll suggested half of respondents believed the way to protect jobs in a crisis was increased government spending. (Nearly a third said they didn’t know. This is definitely the most honest answer.)

For all their complaints of waste and incompetence, the Coalition never seriously challenged the wisdom of activist fiscal policy.

Malcolm Turnbull supported the initial stimulus packages. He only baulked at how much was eventually spent.

And last week, shadow treasurer Joe Hockey said he would take “well-considered government action” in an economic downturn if monetary policy and automatic fiscal stabilisers were ineffective. But he wouldn’t be “sending $900 cheques to dead people” or buying “overpriced school halls”.

It’s a standard opposition ploy. You agree with a substance of a government policy but claim only your team can implement it competently. Garbage, sure, but effective politics.

The ploy worked fine. By the end of 2009 the Kevin Rudd caravan had moved onto Copenhagen and Malcolm Turnbull had been ousted.

The rest of the world has been engaged in a grand debate about Keynesian stimulus, deficit spending, and monetary policy. Australia has not had this debate. The Coalition has not had this debate.

Thanks to our China-led resilience and the purge of our political leadership, Australia has largely forgotten about the whole financial meltdown and economic panic.

Kevin Rudd wants to bring the crisis up again. It’s not clear the Opposition is ready.