Tuesday, January 31, 2012

Column: A generous serve of point-scoring

AS WE climbed the steps into Rod Laver Arena on Sunday night, Hanrahan had never been happier - not because we were on our way to see Novak Djokovic and Rafael Nadal play off in the Australian Open final, but because there had never been so much bad economic news for him to bang on about.

Dr Pangloss had booked a corporate box for the Economists Club, using the money we made when he sold the club's beach house a few years back. I couldn't see why he didn't just book the club on an overseas holiday like everyone else now the dollar is so high, but perhaps Martin Ferguson leant on the Doc to get him to spend the money at home.

Still, it looked like being a memorable night between two evenly matched opponents. That was certainly how Hanrahan saw it - as soon as Dr Pangloss appeared, he let fly.

''OK, Doc, this is your moment of humility. This is the time you have got to admit for once that, in your eternal optimism, you got it wrong.

''Remember the budget last May? You were forecasting that the Australian economy would grow 4 per cent in 2011-12. You were predicting that we would add another 200,000 jobs, and the world economy would hum along. The Reserve Bank believed it so much that it was about to raise interest rates.

''Yet, instead, here we are on the brink of another global recession, with no cavalry left to ride to the rescue. On one hand, we've got Europe sinking into a deepening crisis that seems to have no way out. On the other, the US has become ungovernable, with even bigger budget deficits than Europe.

''Now even China is slowing; this time it won't rescue us. And the Australian economy is taking a belting from the high dollar, and growth has slowed to a standstill apart from the mining sector ?''

The good doctor looked puzzled. ''How many hands have you got, Hanrahan?'' he quipped. ''I count four, so far. This should be an excellent night: the best of all possible tennis players, in the best of all possible tennis venues, right in the heart of the best of all possible economies. I'm going for Djokovic. How about you?''

''I'm with the International Monetary Fund,'' declared Hanrahan. ''It's now warning that the world could face a repeat of the 1930s Depression unless Germany drops its demands for even harsher budget cuts by its neighbours. The IMF wants to allow Europe to grow its way out of trouble, but the German public and politicians don't understand that's the choice they face.

''And if the world economy goes down, we know what will happen to Australia. The markets for our coal and iron ore will shrink, prices will fall, and the high dollar and high interest rates have flattened everything else. Where will your 'best of all possible economies' be then?''

There was a roar from the crowd, but they were merely applauding a Nadal backhand. Pangloss smiled: ''Australia will be outperforming the major economies, as it has for the last four years. Yes, growth will not be quite what we hoped for in May. Our mid-year forecast trimmed that to 3.25 per cent, with our global forecast roughly similar to what is now the IMF's central forecast.

''And its central forecast is that the world economy will continue growing at around 3.5 per cent a year for the next two years. It's not forecasting a global recession ?''

''Because the IMF never forecasts a recession,'' Hanrahan butted in. ''Even in 2008 it didn't, yet its words showed that it expected one. And last week in Berlin its managing director, Christine Lagarde, sent a similar message.''

''? and for Australia,'' the Doc went on, ''the IMF predicts that next year we will grow faster than any of the major advanced economies: 3 per cent, against an average of just 1.2 per cent in the advanced economies. That's normal growth; even you can't interpret that as a recession. We are not at risk. Yes, growth in jobs has slowed ?''

''No, it's stopped!'' Hanrahan interrupted. ''The Bureau of Statistics trend estimates show full-time jobs have been going backwards since May, and part-time jobs since October.

''The forward indicators, job advertisements and job vacancies, are falling too.''

''? but those figures do bounce around,'' Pangloss continued, ''and a separate bureau measure finds total hours worked are growing steadily. The government is rightly giving priority to reducing the deficit so we can have the budget back in surplus by 2012-13. We will get there faster than any of the major economies, and our net debt by 2016 will be only a tenth of the average of the G7 countries. Great shot!''

It turned out the Doc was applauding Djokovic rather than Wayne Swan, but it was enough to make Gradgrind jump in. ''Doc, two months ago you forecast a massive $37 billion deficit for 2011-12, followed by three years of surpluses so skinny that any slowdown would knock them down. And if you don't make more spending cuts, that's exactly what will happen!''

Hanrahan turned on him: ''So you want us to make the same mistake as the Germans, and cut ourselves into a recession? I'm for growth. We should stop worrying about the debt and the deficit.

''Rudd's great achievement as PM was to use government spending to create a firewall against the global recession. Gillard or whoever replaces her should be ready to do that again, and scrap the surplus pledge and all those stupid fiscal rules like limiting spending growth to 2 per cent ?''

Dr Pangloss let out a strangled scream. The next thing, a bunch of security guys climbed in and hauled him away: apparently they thought he was some clown imitating Sharapova. Pity, he missed a really good match.