If money is the life-blood of the economy interest rates are its blood pressure. And if the analogy holds, which it does this far, rates can both be too high and too low.
The risks are also similar. Too high and you risk the economic equivalent of stroke. Just right is somewhere between 4 and 6 per cent, just as with blood pressure there is a normal range for rates and this is what it has tended to be over history.
When rates drop below 4 per cent something is wrong and there is a good risk that the patient may be about to faint.
The public knows this, so the posturing of both sides on the issue is bizarre.
John Howard made a comment which, in reasonably foreseeable and campaigning terms, might have been justifiable at the time, that “Interest rates will always be lower under a Liberal government”. The Liberals appear to have felt trapped into supporting this statement even when it had become unjustifiable.
On the other hand Labor doesn’t want to admit that things aren’t travelling that well, so they trumpet lower interest rates as an achievement.
If there really was a new political paradigm, politicians would be straight with the electorate.
Nevertheless, new paradigm or not, I think they would be rewarded if they were honest. And here is what they should say.
Interest rates are only this low because the international economy is sick, and we’re worried that ours might be as well.
They are being lowered because if they stay above the level of the rest of the world overseas speculators will push our dollar to damaging heights by borrowing cheaply in their own currencies to invest not in our productive industries but our financial markets.
They are being lowered because we are worried that the decrease in capital expenditure in the mining industry will leave Australia without an engine of growth.
But do not expect them to stay at these levels forever.
By all means use them to go out and buy houses and expand your businesses, but budget on significantly higher interest rates in the future when you do so.
You see, interest rates represent a bargain between lenders and borrowers. While low interest rates might be good for house buyers and businesses, they put pressure on the retirement incomes of older Australians.
Whatever has happened overseas, that bargain must eventually move back to favour those who have been savers. Make sure that when they do you aren’t stranded.
And that is advice we are going to take ourselves. This election is not about promising yet more renovations of the Australian political economy to increase the number of shiny objects in it. This election is about facing up to the realities of our economy and the world economy and getting Australia back into tip-top shape.
While ordinary Australians have spent the last 5 years since the GFC getting their own finances into shape, Australian governments have been doing the opposite.
Now is the time to acknowledge that the Australian people were right all along and to realign government with you.
When we’ve done that, interest rates will return to normal – hopefully not too high and not too low, but just right.