Monday, January 05, 2004

From J-curve to U-shape

As a key behind-the-scenes player, since the late 80s, in the dismantling of and its replacement by (= for a lucky few, like Rebecca Cooper, Robin Cooper and son,, Michael Roux has worn a lot of hats. None of which, however, has ever been quite as ill-fitting as today’s one – of economic forecaster.

What on earth is “a U-shaped inflation outlook”? Everyone’s heard of bell curves, and their inversions, and tout le monde is also familiar with the concept of the peaks-and-roughs economic cycle; the graphical depiction of which consists of a series of waves. Most Australians would also remember 80s Treasurer Paul Keating’s famous “J-curve” – the road to improvement that starts by things getting temporarily worse. The trouble with U-shapes in this context is simple: they can only begin from the very top, a point from which the drop is precipitous indeed. What Roux seems to be predicting, then, is that Australia’s inflation rate is going to fall rapidly in 2004. If so, a sudden onset of deflation would be completely at odds with Roux’s roseate raft of other predicted indicators.

Perhaps Micheal Roux should henceforth stick to what he does best, like playing Mr “Welcome to Fantasy Island” at last year’s Australian Leadership Retreat on Hayman Island, a Davos-style Masters of the Universe gathering. In my 1 September wrap-up of that occasion (same URL), I missed this piece, a rare depiction of some open conflict within the room.

Roux emerges quite well from this story, thus enabling it to be re-spun – with or without the connivance of journo George Megalogenis – from a cringe-inducing tale of Australian worthies shooting the US messenger (even though he was on their side, under any test), to an irresistible-sounding apparent consensus, that “Australia needs to have a conversation about America".

Four-and-a-bit-months on, there are few, if any, signs of such a candid conversation being had. The Iraq economic quagmire, and the (related) structural weakness of the US economy (the key concerns that Clyde Prestowitz raised at Hayman Island) remain pressing issues – although Roux today is an uninhibited optimist on the latter, and doesn’t rate the former as even necessary to mention.

As a salesman of blue-sky optimism, then, Roux today has not done very well today. Fortunately, Roux’s can-do philosophy is that, by compounding one wrong (= “reform”) upon another, you will get an unstoppable juggernaut (“cultural change”), a force presumably powerful enough to go up, or down, the steepest of U-curves:

If you want to get change you don't do it by concentrating on one area of the organisation.

If you only reform in one area you actually create fear and trepidation in the other parts and you allow for sniping and opposition to grow against that change.

If the Kennett government wanted to do electricity they also had to do gas and ports, so this was a cultural change required for Victoria, not just privatisation of electricity.

And so on, back to the starting point – which is the other trouble with bell and U-curves: they end where they began.

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