Not exactly, but Possum Comitatus has hit the mark with his remarks on the tabloidisation of the coverage of Glenn Stevens’ ruminations to the House Economics Committee. (Though, parenthetically, Alan Greenspan used to encourage coverage of his lerve interests…) Possum’s right that the sort of confected outrage Daily Terror editor David Penberthy sought to stir up is no substitute for serious analysis of the economic conundrums facing us. And it’s interesting to see Penberthy’s colleague Glenn Milne doing the lockstep thing in his column today, and perhaps giving away the game - the actual source for these sort of stories is big business, worried more about falling sales than any deep compassion for teh battlers. And there’s a suspicious resonance between these themes and those being pushed by the currently compassionate conservatives in the Liberal leadership, who’ve taken populism to their collective (ist?) hearts to the degree that they’re now rather shamelessly pushing a campaign to increase the aged pension, again in cahoots with their meejah mates.
But there’s a couple of other things going on here. First, it is true that Stevens’ comments have been unhelpful for the government, and Wayne Swan in particular. But Swan was the one who really put economic populism on the map last year - contrasting the lived economy of “working families” with the numbers beloved of policy wonks. So, Labor is reaping what it’s sown in a way - which just goes to show George Megalogenis is onto something with his critique of the Treasurer’s difficulties in flicking the switch from campaign message to dour fiscal conservative (also, of course, a campaign message).
Secondly, one of the key aspects of the neoliberal privatisation of economic policy was the flick pass on monetary policy from political decision makers to independent central bankers. This was supposed to depoliticise economic policy, but the political is returning with a vengeance as the orthodoxies of 2-3% inflation bands and associated policy paraphernalia start to fray around the edges in contact with a changed economic - and political - reality. It’s not as though the sorts of criticisms Milne reports are out of the blue. I noted a number of economists making similar points in New Matilda a month or so ago. And in the esteemed journal of financial record, the Financial Review, Brian Toohey recently called for more accountability from the Reserve Bank governor - extending to resigning if monetary policy tanked the economy. Stevens won’t be finding the Penberthy campaigning pleasant, and Swan might be wondering what he’s unleashed, but the fact that the monetary policy debate has outgrown the genteel pages of the business sections shouldn’t come as any surprise. Stevens might not need a pr strategy, as Milne suggests, but his decisions are highly political, and shouldn’t be exempt from political debate. What’s at issue here is the quality of that debate, in my view, not its appropriateness.
Cross-posted at PollieGraph.
Indeed. Isn’t it funny. One moment we must leave all these terribly complicated and essentially technical questions to the ‘experts’ who bring disinterested expertise and steely implacability to their task of managing the ebbs and flows of moolah, free from the disturbing and destabilising effects of democratic debate. The next minute, the steely technocrats are no more than aloof ayleets, unresponsive to the democratic debate generated by battlers’ mates like Milne and Penberthy.
On the other hand, there is a saying about ‘generals and the last war’ and I can’t help feeling that the orthodoxies so fiercely embraced and tightly held by the ALP will in the end, bring them down. No-one really has any way of knowing how the current debacle created by finacial speculation on steroids, is going to play out. And the bleatings of the odious Milne aside, there is no doubt that people in ordinary, ‘average earnings’ paying jobs, who live in the outer suburbs, have mortgages and are raising children, are in fact, increasingly having to tighten their belt. Once of course they would have demanded higher wages to compensate for all this. But thanks to the kind of labour market arrangements so favoured by the same people who brought us financial deregulation, this inconvenience can be avoided. But elections cannot, as Howard found out. ‘Economic management’ has now come to roost on the heads of governments, at precisely the exact time they have shorn themsleves of practically any policy instrument to do the managing with. Oh dear oh dear.
Here’s my two cents: I think Stevens missed the boat on inflation last year … holding off on rate rises early and then playing catch up this year.
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The problem for Stevens, Swan and other policy makers is that our domestic inflation is not just being driven by higher commodity prices. There’s substantial asset price inflation in the housing sector, and certain parts of the construction, mining and infrastructure sectors have seen bona fide wage breakouts (ask any state government currently trying to build tunnels or highways). In fact, wages simply must rise substantially over the next 20 years for demographic reasons, as Baby Boomers leave the workforce. Worse, China is about to switch from being an exporter of deflation through cheap consumer goods to an exporter of inflation, as their cost base begins to rise.
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So inflation in Australia is not going away soon. Which means as the economy slows, we may eventually experience a bout of 70’s style stagflation. Let’s hope the economists are right and that our modernised economy is more open and flexible.
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On the other hand, if you believe Steve Keen and most other informed property analysts, we are almost certain to eventually see a profound slump in housing prices as the asset bubble in Australian property unwinds. Not that this is good news either …
Got a feeling you might be right there, amused.
The economic debate, shorter version:
Howard and Costello: You’re all doing wonderfully well!
Swan: Nope, people aren’t. To the degree that they are, you had nothing to do with it. And there’s something we can do about it.
Swan Mark II: Nope, people aren’t. And there may or may not be anything we can do about it, but we feel your pain.
Nelson: We haz pain!
Glenn Stevens will be severely puished for saying things like this:
http://www.smh.com.au/news/environment/get-used-to-being-greener-poorer/2008/04/04/1207249460420.html
“The problem for Stevens, Swan and other policy makers is that our domestic inflation is not just being driven by higher commodity prices. There’s substantial asset price inflation in the housing sector…”
Here’s a question (only goes to show what an economics lite-weight I am!). I always thought “inflation” (due to faulty monetary policy) was different from simple “price increase” (due to increased demand). Which is it? Or is it both? Or are both those things really one thing, viewed from different perspectives?
(btw, it seems to me that housing-asset prices have turned into an unusual case in our era, for which terms different from ‘inflation’ or its opposite might be more accurate)
From the post:
“Secondly, one of the key aspects of the neoliberal privatisation of economic policy was the flick pass on monetary policy from POLITICAL decision makers to INDEPENDENT central bankers..”
This worries me.
I thought the essence of our democracy was that we, the people, get to vote for representatives who make political decisions on our behalf. The ‘political decision makers’ are, in theory, us one step removed. Subject to the people and all that. Instead of…..?
Yair I know that’s naive, but it is what I am constantly led to believe.
So how can it be democratic to deliberately have this power, this right or privilege, relinquished?
And is the RBA ‘independent”? Independent of what?
Lets look at who constitutes the ‘decision makers’, who they are.
3 bureaucrats. Plus:
1.John Akehurst
Deputy Chairman – Coogee Resources Limited
Director – CSL Limited
2.Jillian Broadbent AO
Director – Coca-Cola Amatil Limited
Director – Special Broadcasting Service
3.Roger Corbett AM
Deputy Chairman – PrimeAg Australia Limited
Director – Fairfax Holdings Limited
Director – Wal-Mart Stores Inc
Director – Woodside Petroleum Limited
4.Donald McGauchie AO
Chairman – Telstra Corporation Limited
Deputy Chairman – James Hardie Industries NV
Director – Nufarm Limited
5.Graham Kraehe AO
Chairman – BlueScope Steel Limited
Chairman – Brambles Limited
Director – Djerriwarrh Investments Limited
And an academic type.
Independent???
Bluescope, James hardie, Wal-Mart, Woodside, Coca-bloody-Cola, Fairfax etc ???
The mind boggles calling these ‘big business’ types independent!
Yep, and I think part of the agenda Milne is channelling is to make the board more responsive to the “interests” represented on it.
j_p_z, perhaps you’re thinking of Friedmanite concerns about “money supply”?
The most egregious aspect of that Tele article for me was the criticism of Stevens for allowing the banks to raise mortgage rates. Nothing at all to do with the RBA’s remit! If the banks are price gouging, surely that’s an issue for the ACCC?
It’s both. In very simple terms inflation is simply the increase in price of goods caused where demand exceeds supply.
In equally very simple terms, faulty monetary policy is where the control of money supply is so slack as to allow demand (through the availability of monetary instruments- either notes being churned off the printing presses, as in Zimbabwe at the moment, or by allowing too cheap access to credit through cheap loans, so that people put their purchases on the never-never) to exceed supply.
Yes, GregM. And we have the first type of inflation. Shortage of food, oil, labour, living space etc etc. Monetary policy can’t do much about this. We have to accept a higher level of inflation than before. It’s structural and here to stay. Raising interest rates will simply squeeze people out of their homes to no positive effect. Nothing is going to bring oil under $100 per barrel; the reserve bank is not going to increase arable land etc. Production is flat-out; what is failing us is resources due to the fact that we are trending along all manner of natural limits to growth.
Demand is not going to be met - no matter what economists do.
We export 70% of the food we produce. Hardly a shortage there, Good luck, though, to the farmers now that international food prices are rising. Would you begrudge them that?
With our dollar rising by about 40% over the last year against the US dollar, on which world oil price is set, we have had a large measure of insulation against oil price increases.
Shortage of labour? Every socialist’s dream surely: Full employment!!! Yes, however, the shortage of skilled labour was foreseeable ten years ago and the former government did stuff-all to avoid it. Except with Section 457 visas and increased immigration. They deserve a good kick for that.
Living space???? You may not have noticed this but we are a little over 21 million people living on 7.6 million square kilometres of land, Even allowing that only 10% of it is really nice to live on (and travel the world and see just how nice that 10% is) we have no shortage of living space.
Yes, “independence” is a particularly inapt word.
It is true that all of these folks would like to see a continuation of capitalism in some guise or other.
It would be a little perverse to invite a member of the Shining Path as a representative of interests dedicated to destroying capitalism.
So, we’re going to have folks dedicated to the survival of capitalism.
I believe that in the past we have had trade union leaders on the RBA Board. I doubt that their advice has been radically different from other board members. (For example Bob Hawke as a member during the 1970s.)
There are two broad conflicts:
1. Borrowers vs lenders. Borrowers tend to like inflation. Lenders tend to like deflation.
2. Export industries vs interests that serve the domestic market. Exporters tend to like a low dollar. Importers tend to like high levels of domestic demand.
It seems to me that lenders have had the upper hand ever since the Keating years. However, there has been a bit of a tussle between exporters vs importers, with the latter getting the upper hand during the Howard era.
Katz, I don’t think it’s about whether they want to ensure the survival of capitalism but whether big business dudes (I don’t think there are any dudettes among them) are necessarily best placed either to evaluate the quality of economic decision making or have an input into it. On one level, anyway.
Not much doubt that Stevens has shown that the RB is established as the fourth tier of government and that he had better get used to it. The same argument has been made in the US following the Federal Reserve’s intervention in saving the Bear Stern investment bank from collapsing with the nominal use of ‘taxpayers money’ to insure/bankroll a takeover by another private financial institution.
The fact is that banking has now become so diversified and interlinked as to be a virtual house of cards thereby requiring an institution of last resort - ie a FR or a RB - capable of stepping in to restore confidence. I hope Stevens tells it how it is particularly on the costs of climate change because I don’t think parliament, the people’s house is going to face up to it in time.
There is one female.
It would be interesting to listen to the preliminary chats around the coffee perc, or whatever they have, just before the meeting and compare that to the tenor of the chats they have when wearing different hats the day before or after when ‘directing’ the financial affairs of some of Australia’s largest companies.
I wonder if they ever get mixed up?
Sort of saying to themselves “I must present a good argument for increasing the prices of baked beans or steel or whatever so as to increase the profits of the company” and suddenly realise its Wednesday and they are in RBA mode?
After all I imagine all board meetings would tend to blur after a while, multi-story building in the CBD, big wooden table, blokes in suits [and whatsername], impeccable art on the wall, laptops all over the place. Disorienting I would think
Its really a credit to them that they can change their aims and foci so abruptly. Still maybe not, after all “Whats good for business is good for America” and “the business of America is business” so maybe there is no mind set shift necessary after all.
Still I worry that they suffer from schizophrenia. They really should be checked out to see how they cope poor dears.
“One of the key aspects of the neoliberal privatisation of economic policy was the flick pass on monetary policy from political decision makers to independent central bankers.”
Mark disapproves of the decision to make monetary policy independent of politics — at least, I assume he disapproves, given he uses two of the key dog-whistling words ‘neoliberal’ and ‘privatisation’ which always carry a malign imputation in these parts.
But it had nothing to do with either ‘neoliberal’ economics or privatisation (last time I checked, you can’t buy shares in the RBA). It was simply good governance — recognised as such by most developed countries.
Imagine, Mark, what would have happened last year, if monetary policy had been the prerogative of a certain J. Winston Howard. He would have kept his promise to the electorate of low interest rates. Oh yes, regardless of the detriment it would have later caused the economy –the inevitable severe recession down the track — Howard would have kept the rates low. It would have been the best imaginable ammunition against the ALP. Would you have been cool with that?
The last time we left interest rates in the hands of pollies, we got “the recession we had to have”. Let’s not go there again, thanks.
Did I say that the decisions should be made by pollies, Paulus?
Katz, I don’t think it’s about whether they want to ensure the survival of capitalism but whether big business dudes (I don’t think there are any dudettes among them) are necessarily best placed either to evaluate the quality of economic decision making or have an input into it. On one level, anyway
I agree Mark.
But that’s addressing a different argument.
In reality, I imagine that the executive members of the RBA Board dominate discussion. It is through them that the advice of the technocrats of the RBA arise for discussion.
The non-executive members of the Board would ask a few sage-like questions, suck their teeth, and finally say nothing controversial when the Chairman states the consensus of the meeting.
That consensus would be pretty much what the top technocrat said would be the consensus long before the non-exec members of the Board dipped their first tim-tam into their cuppa RBA tea.
I think that’s right, Katz, but remember Costello’s big hints to the “independent” members last year that they might do better to listen to him rather than Stevens? Milne’s column is one datum that indicates that’s reflective of a broader view out there - not that they should listen to Costello, of course, but that they should act more as representatives of an interest group than as rubber stamps.
Ah yes but which interest shall prevail? Retailers like people spending lots of money they don’t necessarily have at the moment, and so do real estate agents.
But ’sound money’ men and women worry (rightly) about the corrosive effects of inflation on the value of their returns in the long term. There we have it. And it is not going to go away. What is interesting so far, is the silence of the lambs as the private credit crunch starts to eat up political capital as it were. Can you imagine if this mess was caused by a bunch of thugs who indulged their appetite for a good time, instead of working hard and prudently for their employer? Why, we would be hearing cries of intervention, and ’sack them all’! But of course the thugs responsible for this mess are men and women in suits, who have a lot of our money, and aren’t going to give it back, ever, unless we play real nice, and give them some more.
What a difference a few bill makes to ones moral standing in the world. This is going to play out politically in the next decade in intersting ways.
That’s where the 70s “capital-interest theory” makes sense - the state has to save capitalism from its own short sighted and disunited fractions!
Some point to reading lots of arcane Marxist state theory after all…
There is no doubt that in the post-Great Depression Era, the state, at the insistence of capitalist interests, stepped in to regulate the conditions of capitalism.
Capitalists had been badly burned and deeply unnerved by events of the Great Depression. Leviathan seemed to be their only salvation.
However, after the collapse of the Soviet Union there seemed to be insufficient reason to discipline the markets and to protect the living conditions of wage and salary earners.
Consequently, privatisation, globalisation and deregulation became the order of the day.
It would appear that deregulated capital copes only with difficulty with the opportunities presented to it by a return of public policy to settings analogous to those enjoyed in the years before the Great Depression.
Interestingly, today the financial markets of the world are extraordinarily diverse, flexible and multifaceted. Opportunites abound for financial actors to hedge their risks at very low frictional costs. Yet it seems that large banks and finance houses neglected to take advantage of these opportunities.
That fact would suggest not structural causes to the current crisis, but rather intellectual failure.
In short, the world’s most powerful financial decision-makers were dumb and greedy — a fatal combination.
But that, too, might be a structural cause!
I’d be interested to read your argument on that point!
Just being flippant?
But it might have something to do with what Keynes said about short-termism and also with bounded rationality.
Flippant? Moi?
I don’t know enough about bounded rationality to map with any precision at all the boundaries between structure and consciousness.
I meant I might have been being flippant!
Bounded rationality = our old friends the woods and the trees. Behaviour that is rational within a given set of rules might be irrational in a wider context or from a different angle or where taken to its extremes, it begins to provide incentives to push up against the limits of the rules.
Shorter bounded rationality-
‘This policy/program suits my individual interests right now, and therefore it would be irraitonal for me not to adopt/follow it. But if everybody does it, we will all be rooned, and therefore it is not rational for everybody in the same position to do what I am doing now’.