From the August 22, 2009 Courier Mail (Australia)
August 22, 2009
by Irwin Stelzer
If Australians had any notion of the esteem in which their country is held here in America, they would walk with more than their usual swagger.
For it seems that in many policy areas, America is looking carefully at the Australian model.
Americans have the impression that the Australian economy, its politicians, and its regulators have somehow performed better in this worldwide recession than have their counterparts in other countries.
This might be due to the fact that your unemployment rate is around four full percentage points lower than ours, which is headed to and probably past 10 per cent. Or to the high regard in which Glenn Stevens, governor of your Reserve Bank, is held by the world's central bankers.
And to the good impression your Prime Minister Kevin Rudd and your Treasurer Wayne Swan have made on our delegations at various international meetings.
Or it might be due to the general esteem in which Australia is held in America: cost aside, it ranks No. 1 as the destination choice of all Americans.
Most attention this northern summer has focused on US President Barack Obama's plan to restructure the health-care system - some one-sixth of the US economy - along European and Australian lines, alas. Ignored is a Bill passed by the House of Representatives, but not by the Senate, to set up a CO2 permit trading scheme rather like the European system (our President is more fond of the European social democratic model than of the US free-market model), and the one Rudd proposed for your country.
Rudd's devotion to capping CO2 emissions is matched by Obama's.
So policymakers and industrial leaders here who worry plans to cap emissions will drive up energy costs, but have no effect on global emissions so long as China and India continue to build coal-fired generating plants, were delighted to see they have allies in Australia, a country that, unlike America, cannot be accused of insensitivity to environmental problems.
When your Parliament rejected Rudd's plan for an emissions trading scheme, we noticed. Like Australia, America has coal-dependent regions that would be hard-hit by higher energy costs, and which are represented by congressmen with very thin electoral margins.
ETS opponents know several things.
1: America, already running significant although falling trade deficits, can ill-afford to drive up the costs of its manufacturers.
2: We are running an eye-watering and unsustainable fiscal deficit, which can be brought down by raising taxes, cutting social spending, or by allowing inflation to run wild - none of which is politically attractive. The alternative is to have the economy grow rapidly, generating more tax revenues without significant increases in our tax rates, already among the highest in the industrialised world. More expensive energy is not conducive to such rapid growth.
3: Nuclear plants require long lead times and face ever-mounting costs, and so are unlikely to add much to the nation's power-generating capacity just as it launches an effort to begin converting its vehicle fleet to electricity. US utilities are worried that the recharging of car batteries will overstress the electric grid unless they are allowed to build new coal plants to draw on the nation's ample reserves of coal - rather like the situation in your country.
Renewables, on which Australia is now preparing to rely for 20 per cent of its energy by 2020, have a role, but they are unreliable and very expensive. Obama is trying to shift attention from the high cost and low utilisation rate of green power to the creation of green jobs, but it seems that most of the wind machines and solar stuff will be manufactured in China and other overseas locations.
Americans are also looking to the Australian pension model. American social security is under increasing stress as more baby boomers retire and start receiving entitlements ranging from pensions to Medicare, the government-run health-care system that is to all intents and purposes broke. We have heard wonderful stories about Australians' satisfaction with their mandatory savings plan, not all of them exactly true - witness your brawl over raising the retirement age.
But don't let American admiration of and affection for Australia go to your heads. It will not all be sweetness and light between our countries, as a recent report by the Lowy Institute makes clear.
Obama does not have the deep fondness for Australia that previous presidents have had. He does not regard with the same importance Australia's steadfast support of America in war after war, many of which he undoubtedly opposed.
He is not an instinctive free trader; witness his support for the Dairy Export Initiative to subsidise our exports, and his willingness to allow "Buy American" provisions to creep into our stimulus legislation.
He would be less likely than George W. Bush to craft any import-restricting regulations to favour Australia, as Bush did when he clamped down on steel imports. He will be less likely to understand the importance of a tight alliance with Australia to contain the regional ambitions of China.
And he has already told Prime Minister Rudd that he will not transfer functions from the G-8, a group in which Australia is not represented, to the G-20, where it does have a voice.
Americans' fondness for your country is a great national asset for Australia, especially at the Pentagon and in Congress. It is now less bankable in the White House.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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