Wayne Swan’s copped a lot of criticism for his attempt to stop banks raising interest rates, but mostly for the wrong reasons. Swan’s only powers over bank interest rates are persuasive, not real. He heavied the banks and was ignored, stripping bare any perception of power. Next time he tries to talk the banks into keeping their rates low he won’t have a feather to fly with – he’s destroyed any credibility he might have had right at the beginning of his reign.
The approach of a commonwealth treasurer to bank interest rates ought to be to work out what they are going to do, and then to organise his position accordingly. That way the appearance of power can be perpetuated, and the possibility of jawboning them into a less agressive stance in the future maintained.
The correct approach for Swan should have been to point out that the sub-prime crisis is being driven by international factors which are outside the control of the government – i.e. “Don’t blame me”. He should also have made the point that in-as-much as there are domestic causes, they are the doing of the Howard government – i.e. “If you’re going to blame anyone, blame him.” His last point should have been to try to jawbone Australian consumers and companies, rather than the banks – i.e. “The lessons of this are that we need to be more cautious about debt than we have been.”
One of the reasons that the Howard government lost was because it didn’t have a narrative which justified some rises in interest rates and quarantined their position from the blame. They did little more than barrack for economic growth, thus inducing misplaced optimism. While Labor is generally better at narrative than Liberal, in this case it looks like Swan has no idea how to position himself. That calls into question not just Swan’s judgement, but the quality of the advice he is getting both from inside his office, and outside it, from Treasury and the Reserve Bank.
Costello may not have been the greatest treasurer that Australia has ever had, but at least he had the experience to know when to duck for cover, which is what this Swan should have been doing.