Malcolm Fraser conducted economic policy with two broad sweeps of the brush; keep inflation low by keeping the federal budget out of deficit, and stopping trade unions increasing wages in a full employment economy. In my opinion, the recent IR legislation has Frasernomics as its driving force.

Gary Sauer-Thompson on his brilliant political philosophy site discusses the contrasts in individualism and conservatism by dissecting an op-ed from Ken Phillips. From Phillips op-ed in the Australian ;

In this respect the Howard Government's proposals [IR] are truly radical because the stark alternative offered is a belief that individuals do and can have the capacity to control their work futures. This individualism assaults the Australian conservative settlement. We have a cultural battle, between a belief in the self and a cultural fear of the self.

I don't agree with this, while there is a tension between conservatism and individualism in Australia, I don't believe the IR legislation fractures along those lines. Rather than individualism, this is an attempt to stop inflationary pressures. In the US, inflation is jumping up past four percent between energy, education, housing and other areas. The Australian CPI has been relatively stable .

The spin appears to be, this IR legislation will make Australia competitive; supposedly through deflationary pressure on wages in commodity industries. Kirby Adams is from Bluescope Steel ;

"This kind of industrial reform is required to attract and retain investment capital in this country and to ensure Australia is globally competitive in manufacturing," he said.

A good chunk of the legislation in the Workplaces Amendment places restrictions on industrial action and how Unions can interact between employer and employee.

I do not like the IR legislation because it is anti-federalist. The federal government has no right to be legislating in this area. It is another massive power grab by a federal government seeking to collapse all authority to Canberra.

From the Workplaces Amendment [PDF Warning] ;

(1) This Act is intended to apply to the exclusion of all the following laws of a State or Territory so far as they would otherwise apply in relation to an employee or employer:
(a) a State or Territory industrial law;
(b) a law that applies to employment generally and deals with leave other than long service leave;
(c) a law providing for a court or tribunal constituted by a law of the State or Territory to make an order in relation to equal remuneration for work of equal value (as defined in section 170BB);
(d) a law providing for the variation or setting aside of rights and obligations arising under a contract of employment, or another arrangement for employment, that a court or tribunal finds is unfair;
(e) a law that entitles a representative of a trade union to enter premises for a purpose other than a purpose connected with occupational health and safety.

I hope it is challenged by Queensland in the High Court, or alternatively, one of the states goes feral on the issue. The legislation also empowers Ministers to break strikes (Division 7, 112). This is like the DIMIA legislation which places undue power in the hands of Ministers, essentially making the use of such powers arbitrary.

Additionally, if I was a small business owner and had to read through all this - the amendments run to 691 pages - I would be throwing my arms up in the air in a quick WTF.

The legislation itself looks par for the course for the Howard Government; it is hostile to unions, hostile to the states, and adds a new layer of complex regulation, overhead and uncertainty to anyone (employer or employee) subject to it.

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Barry Ritholtz has an impassioned plea; give us capitalism or give us socialism, but not the half arsed mess of both that the US Federal Reserve is serving up in the name of politics, bad policy, poor governance and crony capitalism. The result will be to prolong the current mess of bad lending, keep the recession going and increase inflation. None of which are palatable in the long run.

Ritholtz points back to the governance of Greenspan at the US Fed who actively promoted bubbles and then bailed out losers of the bubbles by making credit cheaper so that there were no losers and speculation could continue. Capitalism works best when those that over speculate are punished for it by bankrupcy.

Without the correct signals and punishments for failure then risk simply does not exist. We saw this in the subprime markets where risk was assumed to be absent. As a consequence bad loans were made that can never be recovered. The bad governance aspect is that now the US Fed is asking for 300 billion of tax payer money to bail out private institutions - include Fannie Mae - to cover their risks made on the private markets. This is not how capitalism works. Ritholtz writes:

There is a choice to be made: Either we regulate the Banks, or leave it to the vagaries of the free markets to punish those who trade with, or place their assets in the wrong institutions. But for God's sake, do not give us the worst of both worlds -- do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill.

That's not capitalism, its not socialism, its not regulation, and its sure as hell isn't what free markets are. Our language is insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual. Ideological idiocy is the only phrase I can muster that has any resonance with the daily insanity.

Ritholtz makes the statement that our institutions have failed us and that this is misgovernance on a grand scale leading back twenty years. Economic policy has not been grounded in the principles of capitalism; but instead 'feelgood' politics and outright criminal behaviour. American capitalism is losing its foothold as the world's leaders in economic activity. This is being shown in the US dollar dropping in value. It is bad policy and criminal behaviour that has led to this. It is recoverable - and the US will recover - it is not dead in the water yet. But it will take a strong hand of governance and the democratic will to govern with economically sound policies.

Joshua Gans has argued for an Aussie Mac. Australia has not needed one this far, and as a country Australia has more regulation into capital markets than the US does. Australia has not been impacted greatly by the subprime mess - only Macquarie Bank and a couple of others IIRC were up to their necks in it - and while global capital will become more expensive with the turmoil from US markets, it is no excuse to subsidise home lending with taxpayer guarantees. Otherwise politics will trump economics and Aussie Mac will be used for all manner of bailouts and social engineering.

Governance matters, and bad governance has a habit of sticking around despite the best efforts to remove its effects. Paul Fritjers writes:

The structures now being built in the US or Europe (direct interference) to regulate the financial markets may be with us much longer than we would like.

State of exception governance or crisis governance is not easily eradicated. Australia is stuck with the legislation form the exception governance of the latter Howard years such as the Northern Territory intervention and the Migration Act Amendment. The linger as tools future national governments can use to act arbitrarily.

The same with the Bush Administration's approach to this financial crisis, the entirety of it is being handled in the US Treasury as an executive issue. As Paul Fritjers noted the policy from the US Executive is direct interference and the redistribution of wealth from taxpayers to the financial and banking industries.

That legislation and policy will linger long beyond this crisis and we will see future economic bumps dealt with in socialistic manners rather than letting the weak banks fail and the strong ones snap them up and take them over for pennies on the dollar. A close relationaship with the executive has now become an essential part of the financial industry's wealth and ongoing health. They now have a political face as well as an economic one.