Rate rise schadenfreude

Ross Gittens, Economics Editor for the Sydney Morning Herald, has a good op-ed about the latest rate rise of .25 percent. With another rate rise on the horizon, it's worth revisiting the politics of interest rates, and how the Government's responsibility may be perceived.

The weird thing about modern elections is the mind-bending that goes on. Media and punters who spend 34 months in every 36 hanging on the Reserve's every word to see what it may do to rates suddenly switch to believing interest rates are totally within the politicians' control.

After all, it's the elected government that runs the economy, isn't it? Economic illiteracy runs rampant for five or six weeks.

So, although a rate rise would be terribly bad luck for Mr Howard, it would also be rough justice. Someone who's taken such liberties with the truth about the factors that influence interest rates was asking to come unstuck. Someone who's enjoyed such good luck on the economy was overdue for a bit of bad luck.

Think about it. He inherited the economy after Paul Keating had done all the heavy lifting of reform and suffered the partly reform-induced recession, after the worst of the recession had passed and just as the reform was about to start paying dividends.

He came to power after Labor's Accord had got wages back in line with productivity so that real wages could start growing again and just as the economic upswing was about to whirr the budget back into continuous surplus.

He arrived in time to enjoy the benefit of his predecessors' efforts to get on top of inflation and get nominal interest rates falling.

That led to a record property boom, in which house prices more than doubled.

And just as that boom was about to bust and leave a lot of unhappy people, a once-in-a-lifetime resources boom came along.

Really, he doesn't have a lot to complain about

The standard conservative response to any and all rate rises under the Howard Government, has been to claim that Howard only promised to keep interest rates comparatively lower than Labor. He did not, they emphasise, promise they would not rise at all.

Whilst this may be true, it is surely a glib summary of the issue. Even if we accept this technical interpretation of the promise itself, which is almost certainly not what the low SES mortgage belt punters who elected him in 2004 would have thought, this ignores all the criticism Howard copped for implying he had such control in the first place. That's the main objection, not that Howard broke his promise.

In relation to this, Gittens' comments are very accurate. Any fallout Howard receives over the rate rise is basically his own fault, as it was his political game in the first place which sought to take sole credit for low interest rates, and thus punish Labor.

Any glee from the Labor side of aisle, therefore, need not have anything to do with perceiving Howard as a failure. His lacklustre reform record compared to the Keating-Hawke years, and his woeful tenure as Treasurer, do that for us. Rather the "gotcha" type sentiment we've seen in response to the rate rise is a simple case of schadenfreude.

For if Howard was happy to benefit from the economic ignorance of voters to get him elected in 2000 & 2004, by taking undue credit for interest rates, it's only fair that he cop it when those same punters reflect those expectations back on him. This is a political bed Howard has made for himself, and now he has to lie in it.