If you pick on someone for being ignorant, it’s a good idea to know what you’re talking about yourself. Wayne Swan broke that rule when he tried to capitalise on John Howard’s gaffe when Howard failed to accurately name the official cash rate. This brought him even with Kevin Rudd, who a few weeks ago couldn’t get the tax thresholds right.
I don’t think these minor factual errors are really that significant. Afterall, the man who knew the answer to every question, Pick-a-box King Barry Jones was a woeful politician.
What I do care about is that politicians understand the principles of how things work, which is where Swan came undone. His response, as quoted on ABC Online was:
“I think a lot of Australian working families with mortgages out there would be shocked to find out that this Prime Minister is simply unaware of their mortgage interest burden,” he said.
“The difference involved here between Mr Howard’s answer and the rate of 6.5 per cent is $600 a year.”
The only problem with that is that whether the cash rate is 6.25% of 6.5% has only a marginal bearing on mortgage rates. What is much more important is competition between lenders both to lend, and for money to lend. In the short-term the collapse in the low-doc loans market in the US is what is primarily dictating mortgage rates.
I’m also wondering how he arrived at his $600 figure. It implies that he is talking about a mortgage of $240,000, but who has that mortgage? Is it the average new mortgage? Is it the average mortgage? Or did he just pull it out of thin air because it sounded good? Perhaps a reader might be able to help out with a link. Note: I’ve managed to track down the average mortgage, and at $239,000 it’s close enough to Swan’s figure, so I’ll retract that part of the post.
I’d be more worried about Swan’s graps of the detail than the PM’s 0.25% gaffe.
A 0.25% increase is $50 a month on a $300,000 loan, which is the figure all the media outlets used when the rate first went up.
So I am guessing Swan or his staff googled old media stories and did $50 x 12 = $600.
Comment by Stephen Lloyd — October 16, 2007 @ 4:21 pm
Thanks Stephen. I actually corrected the post above. The average mortgage is just shy of $240,000, and .25% is close enough to $600 that it’s not worth arguing about. I would have taken the par down, but it’s sort of against the spirit of blogging to touch it once it’s up, so I corrected it, and will have to live with the consequences! 🙁
Comment by Graham Young — October 16, 2007 @ 5:36 pm
How embarassing Graham! You post something in the morning and then have to retract it before sunset!!!
Whether we are talking RBA cash rate, bank bill rate, fixed mortgage rate, variable rate or bank overdraft – a 25 basis point understatement is 25 basis short of the mark.
And as Stephen has pointed out – that is $50 a month on the average mortgage.
Comment by Damon Hall — October 16, 2007 @ 8:19 pm
I only retracted part of the post. Swan used a figure which sounded suspiciously round and I tried to enlist readers in helping out with the figures, which Stephen did. I also went away and did my homework and posted the result when I had.
The general point still holds – Swan appears to be equating the cash rate with the mortgage rate.
Comment by Graham Young — October 16, 2007 @ 9:26 pm