...and on the Right

I've been wrong on every turn on the ACT contracts on iPredict, but through some decent arbitrage plays was able to limit my losses to about $21 in total.* My crystal ball is very dim; discount things as you like.

Don Brash as incoming ACT Party leader will face the same strategic problem that ACT has faced for rather a long time. If they're a strong force on the economic right but cement themselves into social conservatism, they only have bargaining power with a future National government to the extent that they can commit to bringing down a National government, or preventing one's creation, in favour of a Labour-led alternative. National's policies would have to be very far from economic liberalism before that threat became credible.

ACT's best hope is if National wants to have a scapegoat for sensible but unpopular economic policies. But blame the coalition partner only gets you so far, as Key knows. Were Key inclined to break campaign promises and blame the coalition partner, ACT would have been happy to help out in the first term. Were Key even inclined to support the reversal of legislation that National opposed and that National did not rule out changing during its campaign, like the youth minimum wage, he could just have supported Douglas's youth minimum wage bill and blamed ACT for it. The minor party that can't plausibly flip to the other side has constrained bargaining power. They'll get more with more seats, but I'm unconvinced that an ACT party with 10 seats would have much more bargaining power with National than the Green party with 10 seats has with Labour. Or, rather, let me put it another way: I'm unconvinced that they'll get policy concessions beyond those that National would likely have enacted anyway had ACT died. Regardless of ACT's existence, National was going to have to start on the serious work of fixing the structural deficit in its second term. It's been laying the groundwork preparing folks for it. The counterfactual matters.

This had been my biggest critique of Rodney Hide's leadership: in his estimation, ACT did best by proving themselves a safe and reliable partner for National - the loyal supporter that would receive its policy dues. Such was Hide's loyalty that he even backed Key against Roger Douglas's very sound critiques of government economic policy. All the effort and opprobrium of handling the Auckland Supercity campaign could be worth it if the Regulatory Responsibility Bill had gotten through. The unified opposition of the bureaucracy, Treasury, and the legal community to the bill suggests that there might be some problems with it as drafted, however worthy and necessary its intentions are. And I'd bet that that will yet kill it in committee. In which case the last term's not really come to much - supporting National through a bunch of nonsense to no policy benefit.

I had rather strongly misread Brash's play. I'd thought that his push for the ACT leadership was designed as an offer to be refused: lots of negotiations through the media and teasing them with that he'd commissioned some polling that would be available a fortnight after he launched his attack on Hide - it looked more to me like somebody trying to make sure that everyone had seen that he'd given it a go than like someone who really wanted the job. Seems I was very wrong.

I'd thought that Brash wanted the pretence of having sought the ACT leadership before launching his own vehicle that was free of some of the ACT baggage and to which the more liberal side of ACT might have fled. Then, he could have launched an economically right wing party free of the social conservatism that's been far too dominant in ACT over the last few years. A few key socially liberal policies like easing up on the drug war and eliminating asset forfeiture could have had a truly liberal party in a spot where it could credibly join up with the Greens to make civil liberty demands in a coalition with Labour. Then, post election, the new liberal party could put up a small set of "must do" and "mustn't dos" as condition of coalition with either National or Labour/Green. In that kind of position, a liberal party could keep Labour from doing anything too horrid on the economic front while promoting civil liberties, or keep National from doing anything too awful on civil liberties while promoting sound economic policy. I think the numbers are there that would back that kind of liberal party, but it couldn't easily happen if ACT were still in play.

In hindsight, it was entirely wishful thinking. I should have paid more attention to the talk of John Banks being onside for whatever play Brash was making; Banks is not an obvious first choice as a partner in a liberal party. But I'd never paid any attention to the former Auckland mayor and didn't realize the significance of his entry. In today's interview with Kathryn Ryan, Banks talks about being able to implement conservative policies (check 17:18, which is followed by an awfully embarrassing ebullience about the upcoming royal nuptials). I really hope he's only thinking about economics. But it'll be interesting to see where Brash takes the party. Campaigning on a straight platform of "Implement the 2020 Taskforce's Recommendations" would be great. But if they also wind up working to stomp on what's likely to come from the Law Commission's review of the Misuse of Drugs Act, they'll have done more harm than good.

A Brash-led ACT will do much better in the polls. iPredict's contracts on ACT returning to Parliament stopped being pulled downwards with the drop in the price of the contract on Hide's keeping Epsom and started being pulled up by the contract on Brash leading ACT. I was shorting the "At least one ACT MP to be elected to next Parliament" contract a few weeks ago when it was around the 50 cent mark; it's now closer to $0.90. ACT's projected share of the Party Vote has gone up to 7.5% from 3; National's has dropped from around the 46% range to about 45%. National's probability of winning the next election is back around the 85% range - about where it was trading when it looked more likely that ACT would fold and ACT voters would go back to National. The market says National's chances of forming government are little affected by the change in ACT leadership but that ACT's survival is greatly enhanced. And so Rodney Hide did the right thing by ACT, and very graciously, in standing aside.

* My losses, though they could have been worse were it not for some timely noticing that the sum of bids on contracts spanning particular spaces often summed to more than one (for example, Brash was hardly going to both form a new party AND run ACT, now, was he?):

• Closed stocks
  • $12 on Hide keeping his seat in Epsom
• In the running
  • $3 on Hide losing his position as ACT leader
  • $23 on ACT returning to Parliament
  • $12 on Brash becoming ACT leader
• But against these are $29 gain on whether a new party would be formed on the right