Car production at Holden's Elizabeth factory in Adelaide.

Car production at Holden's Elizabeth factory in Adelaide. Photo: Bryan Charlton

Joe Hockey and the dries in the Abbott cabinet got exactly what they wanted with the decision by General Motors to cease manufacturing in Australia.

It was, as they see it, a victory for economic common sense, for the consumer and for the budget bottom line. It was the simple application of reason and the market to an industry that can no longer exist in this country without massive government subsidy.

They are probably right, in economic terms at least. Even those who are sentimental about cars, or worried about our capacity to ''make things'' or concerned about the human cost of the decision might be better focused on new growth manufacturing industries than the propping up of those in which high-wage countries with small consumer markets can no longer compete.

A worker tapping into the copper stream at BHP Billiton's Olympic Dam smelter, 560 kilometers north of Adelaide.

A worker tapping into the copper stream at BHP Billiton's Olympic Dam smelter, 560 kilometers north of Adelaide. Photo: BHP Billiton

But will the same economic common sense be applied to dealing with the political, social and economic dislocations caused by this application of the brutality of economic laws?

Some of the doomsayers have suggested that the effect of the Holden closure, with or without a further closure by Toyota, will cause a sharp recession in southern Australia, particularly (but not exclusively) in Victoria and South Australia.

With downstream losses from lost work for suppliers, about 200,000 jobs could be lost. The net economic cost has been forecast (by not necessarily disinterested parties) as about $22 billion. That is to save perhaps $400 million a year in public subsidies going to Holden.

Labor claims that Holden would have stayed for another $75 million to $150 million a year, and that the timing of its decision to pull up stumps was set by the way the Abbott cabinet made it clear it was not interested in negotiation. Partly as a result of criticism of its GrainCorp decision, the government was keen to show the international markets that it operated by market principles, not nationalism or sentimentality.

Having done that, however, Prime Minister Tony Abbott was more than willing to empathise with the losers and to show himself sensitive to the need to help them live with the transition to the nirvana this application of free market principles will (in theory at least) lead us.

Governments, federal and state, will attempt to alleviate and smooth some of the consequences by focused programs of expenditure, by helping skilled workers to retrain and to relocate, and by seeking to sop up some of any excess (but, they hope, temporary) supply of skilled labour during the transition.

So we are having the Prime Minister talk up the possibilities of BHP Billiton deciding, after all, to proceed with a major extension of its mining operations at Olympic Dam, in the middle of Australia. BHP had decided, on economic grounds, not to go ahead for the moment a year ago, and the financial ''optics'' have not improved since, but politicians, Labor or Liberal (and both are involved here), can always hope - and perhaps make the equation more attractive.

Mining is increasingly a high-skilled, high-tech operation and, it is hoped (provided BHP Billiton plays along) some of the dislocated Holden workers and their families could move to Roxby Downs for jobs. This exercise in the mobility of the labour force would be no more difficult or unwelcome to those involved than, say, the relocation of several suburbs of Canberra to Cobar.

And the man who says that he wants to be known as the infrastructure prime minister can be expected, in conjunction with the Victorian and South Australian premiers, to pull a host of infrastructure projects from the bottom drawer, again to help smooth some of the temporary problems.

We will no doubt hear soon from the professional rent seekers. They will insist that the local crises mean that some shipping yards in Melbourne should get the contracts to build new ships for the navy, or that the decisions about what sort of submarines should replace the Collins Class ones, and how many, should be determined not according to our strategic needs, or with regard to price and efficiency, but so as to prop up the South Australian economy yet again.

In some cases this will be dressed up as political realism, in other cases as economic common sense. Others will be insisting it is all win-win, in much the same way they once insisted that protecting foreign-owned local manufacturers with massive subsidies was win-win for Australia.

It was precisely so as to achieve such purposes, not defence purposes, that the Collins was chosen several decades ago, that it was built in Australia at about twice the cost it would have cost elsewhere, and that its replacement, because of its fundamental defects, is becoming more urgent. And it was for just such political, social and economic purposes, not defences purposes, that various parties (particularly the spiritual father of the Collins, Kim Beazley) became excited and promised more submarines of the same type.

The nature, type, cost and usefulness of defence expenditure owes far more to the need to prop up different parts of the economy than it does to Australia's real needs. Australian defence might cost 25 per cent less if it were not for having to cope with such rent-seeking.

One cannot expect that the defence establishment will point this out, even in self-defence. The classic senior military officer usually ends up working as a consultant to the defence industry - as do all too many political careers. It is generally thought that the next submarine purchase will cost about $40 billion, particularly if it is a condition of the purchase that most of the construction occur in Australia.

Undoubtedly the project, and the prospect of another one, has been very important to an ever-tottering South Australian economy. But it is no means clear the good voters there have recognised this and have rushed forward to vote for relevant political parties, particularly Labor, as a result. Indeed, familiarity may have made them far better aware than most that the subs are duds, and that making them happen in South Australia was mere attempted bribery.

It is conceivable, but highly unlikely, that a South Australian-based firm could design and build the type of next-generation submarine Australia needs, and be chosen for the contract on that basis.

Far more likely is the prospect of the Australian government writing into the very tender specifications the need for the subs to be built in Australia, probably, for political reasons, South Australia. As ever, whenever defence expenditure is concerned, Treasury and Finance will look the other way (if holding their noses), desperate not to be connected with the inanity involved.

If the contract does not go straight to an Australian tenderer, the overseas tenderer will most likely have to promise to spend 50 per cent or more of the tender price in manufacturing bits of the thing in Australia. By whichever method, one can pretty much guarantee that Australia will be paying at least 50 per cent more for the subs than had they bought them on merit abroad.

One can also be pretty sure that most of the claims assigning a high value to technology transfer, or jobs created, will be specious. If it were otherwise, one might have expected that, over time, the very shipyards, industries and personnel involved would have been successful in securing contracts from elsewhere, in widening their fields of expertise into the civilian sector, or in adding significantly to the national gross domestic product.

I have heard it said that the skills acquired by welders building national gas pipelines in the 1970s and 1980s added nearly 1 per cent to the gross domestic product over the years but, when it comes to defence acquisitions, the figures are, ever, the sum of the inputs.

Here is the point. If government was rational in deciding not to keep pouring money down the Holden drain, will it carry on with that rationality by refusing also to pour money down another drain, by coping with the problems its first decision created?

Or will it prove that its ''bravery'' and ''realism'' and anxiety to please a critical international financial system goes only so far, after which the politicians fall into a funk of routine pump priming, distorted markets, effective protectionism and government by political cycle?

Put it another way. Will this government, alone or in concert with the most affected states, spend thousands of millions of public money coping with the political, social and economic consequences of having decided to no longer spend hundreds of millions propping up the car industry? And if so, was the government as hairy chested, or rational, as it pretends? Does it deserve the applause it is getting from lobbies infatuated with neo-liberal and free market ideas? And what does it all say about the federal government's bottom line?

Next week Joe Hockey will be issued midyear Treasury forecasts. He has already promised that they will be shocking, showing a federal budget in continuing deterioration, both as to the expected bottom line and as to revenue prospects. He has every reason to make the figures, particularly the expected results for 2013-14, look as bad as possible, if only so he can claim the credit for any improvement in the years after.

Naturally enough the primary political strategy must be to monster Labor and in particular to blame its profligate spending, its borrowing (and the oppositionism it is copying from Abbott's success) for everything that is bad. In certain respects, the worse he makes things appear, the more chance he has to persuade the population to take stiff medicine, including significant spending cuts.

But he must also deal with nervousness from his own side, not least from the Prime Minister. And he must deal with operating political realities, including the need to plan for a fresh Senate poll in Western Australia, a South Australian election in which the Liberal Party has high hopes, the risk of a Victorian election, and at least one House of Representatives byelection (caused by the retirement of Kevin Rudd).

All of these have the capacity to make inconvenient the release of unpleasant or unpopular political or economic news over the next few months. Likewise the shock effect of the Holden closure puts a focus on spending by government as a counter-cyclical way of maintaining demand and public confidence, rather than on the cost-cutting and debt-cutting he thinks is required.

It is difficult to see Abbott, in particular, wanting to be seen as some sort of Campbell Newman, closing schools and hospitals, and dismissing public servants, at a time when there is an upsurge of insecurity about jobs, and about future prospects. All the more so when opinions polls - those things to which politicians on both sides have become so much slaves in recent years - suggest that the honeymoon is over, and that the Abbott government is beginning to slide in popularity.

There are worse times for this to happen than at the beginning of the silly season - now officially beginning and, natural disasters apart, likely to continue until Australia Day. But it is hard to see how Abbott could argue, as John Howard once did, that ''the times will suit me''. For Abbott, for Hockey, and for Australians generally, the times may not suit at all.