Commonsense and a mellowing Hide

Commonsense is a common casualty of theory and ideology — and of policy when theory and ideology get too big a run.

The world is in a banking pickle because some brilliant mathematicians parted some excited bankers from commonsense with a formula which purported to reduce risk to once-in-a-universe-lifetime levels, provided there was a diversified portfolio. Commonsense would have advised a scan of history: there had been three of the sorts of events which falsified the formula in the previous 80 years.

Alan Greenspan worried about “irrational exuberance” when the Dow Jones share index went up through 6000, a number it may now be about to go down through (from 14165 on October 9, 2007). Commonsense would have suggested leaning against the asset bubble that was driving the exuberance but ideology locked Greenspan into impotence. When that bubble burst he let another build.

Ben Bernanke is a fine economic theorist — and Greenspan’s successor at the Federal Reserve Board. He argued from deep theory that Greenspan was right on asset bubbles. The commonsense observation that ballooning debt and hugely expanding money supply might be relevant didn’t fit the theory.

Then Bernanke devised the ingenious notion that excessive saving in places like China was driving the dangerous imbalances in the world economy which are now unwinding to everybody’s cost. Thus did he turn virtue into vice. Now Nobel Prize winner Paul Krugman has taken the same tack.

Commonsense says no one was forcing Americans to borrow recklessly, that it was the borrowers, not the savers, who were the problem.

John Key is a man of commonsense. That is one of his qualities that is prompting comments from non-National quarters of the “I find myself warming to him” variety.

Rodney Hide is a man of fierce belief. He leads a party founded on an ideology which he describes as “classical liberalism”. It idealises and treasures individual liberty and property rights and, in the economy, values low taxes, small government and light regulation as the means of ensuring that liberty and those rights.

How Key and Hide manage their political marriage has implications for the government’s longer-term health — and, given the value of constancy in the Beehive, the health of the economy and the country.

It was not a marriage made in heaven. Many in the National party think Hide is low-life and hoped he would sink in 2005. (But too many Nationalists in Epsom thought otherwise.) For his part, Hide last year was scathing about Key: “Kevin Rudd said ‘me too’ to policies that made Australia richer. John Key’s saying ‘me too’ to policies that are making New Zealand poorer.”

Still, they got hitched. Will they stay hitched? One test will be next weekend’s annual ACT conference.

First, the revival of spirit at last year’s conference when Sir Roger Douglas came among them again has translated into self-congratulation and hope for bigger things next election after Hide’s lift from two to five seats. Many will see this as a vindication of the ideology. Next task: rebuild the scanty membership.

Second, there will be expectations. For 12 years ACT sat largely impotent in Parliament, unwanted by National before 1999 and anathema to Labour after 1999. At last it has ministers in the government, a support agreement incorporating many ACT ambitions, an excellent relationship with Key (MPs say) and a chance to influence policy from the inside.

But, third, how much influence? National’s electoral imperative is to stop voters crossing the divide back to Labour whence commonsense Key attracted them. Too much low-tax, government-cutting ideology in times of economic upset and insecure jobs, risks just such a migration.

Of course, National may nevertheless need ACT after the next election. With a 4 per cent bigger vote share, continued Green strength and a convincing pitch to Maori party voters, Labour could be competitive.

But National needs the Maori party more than it needs ACT, to build its brown vote and lock Labour out. And keeping the Maori party onside may well take the government into territory that is foreign to ACT’s principles. If supporters peel off, ACT will struggle to mount a strong campaign in 2011.

So Hide, who in office is starting to mellow, has two separate messages to get across this coming weekend.

One is that he is keeping the catechism, that he will maintain the points of difference with National, especially on the economy. That is ideology.

The second is that, with a centrist party leading the government, the best route towards a more ACT-like economy is through small victories and, as a result, realistic promises of small victories next term — that the long game for small parties in our politics is more about keeping the goalposts in sight than dramatic loner goals.

That is plain commonsense.