By Elisa Barwick

If an economy amounts to an accumulated mass of individual decisions—supply and demand in the marketplace—then cooling inflation might have to come at the expense of the people, by forcing them to crimp their spending and taxing them sneakily via high interest rates on their debt. (Though there are problems with this theory: While decreasing demand, this approach can supress improvement in supply as higher interest rates constrict the credit required by business to expand.)

But the economy is more than a morass of individuals transacting like ants bumping into each other in some form of primitive communication.

The economy is a vehicle to deliver a future—one that will provide the shelter, food, water, power and security for all the nation’s people. Leaders are elected to make the big decisions that guide the economy to that end. The most important decisions relate to the provision of fundamental infrastructure—roads, railways, water, electricity, etc.—without which none of the rest of the economy can function, and none of the worker ants can do their thing. Just as crucial is the financial infrastructure which facilitates the investment into those projects (credit) and allows the production of the nation to be bought and sold, including in overseas markets. Many of these functions are not inherently profitable so don’t operate on the market model.

The economy is not viewed this way in Australia because monetarism prevails. Monetarism—which puts money and the manipulation of money foremost in economic policy—gained currency in Australia before Margaret Thatcher and Ronald Reagan became its flagbearers overseas. This was due to private businessmen flying its leading advocate, Austrian School economist Milton Friedman to Australia in April 1975, direct from Chile where he had been writing economic policy for the brutal dictator Augusto Pinochet.

RBA’s monetarist straitjacket

Michele Bullock announcing the RBA rate decision. Photo: Screenshot

An inhabitant of this alternative universe, Reserve Bank Governor Michele Bullock in her 10 December media conference following the RBA board meeting on monetary policy decisions, painted a picture of how the RBA is alleviating the pressure on Australians from the cost-of-living crisis, by beating back inflation with its one tool—interest rates. But she noted in the next breath that “prices are not going back to where they were before this high inflation. The high inflation over the past couple of years has permanently increased the price level.”

The board elected not to cut rates, she reported, because “underlying inflation currently remains too high … inflationary pressures are declining but risks remain”.

Other tools are available—rescued from the legislative dustbin during the last parliamentary session when independent and Greens MPs demanded Section 11 and Section 36 remain in the banking acts drafted by the Curtin-Chifley government to protect the government’s authority over the banking system. Their retention means that at any time the government could override the RBA’s interest rate decisions, and the RBA could rein in the private banks’ speculative lending fuelling the housing bubble.

Another factor is—horror of horrors to the RBA’s current thinking—falling unemployment. After the RBA’s rate announcement it was revealed that the rate of unemployment fell below 4 per cent in November (to 3.9 per cent), which economists and commentators say wipes out the prospect of a rate cut in February. The RBA considers the “non-inflationary rate of unemployment” to be 4.5 per cent, so an unemployment rate below that level feeds inflation and is thus considered undesirable!

At a rally outside RBA headquarters in Sydney on 10 December, after the RBA meeting, Australian Council of Trade Unions secretary Sally McManus told union members: “It’s wrong for the Reserve Bank to want unemployment to go up before they can start cutting interest rates. Their job is to ensure full employment.” We want the RBA board members “to see the faces of ordinary Australians” under pressure from their high rates, she explained. Various factors pointed to by economists indicate that the RBA may be overestimating the strength of the labour market, raising the danger that its tightening cycle may go on too long, setting off a worse predicament.

At the same time, the RBA is building a case for a possible new wave of inflation set off by a Trump “tit-for-tat trade war”. On 11 December RBA Deputy Governor Andrew Hauser gave a dependably inimitable speech headlined “The Ghost of Christmas Yet to Come” in which he warned that under one trade war scenario “prices would rise across the world—including here in Australia—as global supply chains are disrupted”.

If Anthony Albanese and Jim Chalmers (who did accuse the RBA of “smashing the economy”, remember) want to get re-elected, it’s not too late to pull the levers available to them to relieve the cost-of-living crisis—which might just be a little bit popular with the average voter. As for the alternative, a Dutton government, the last time the Liberal Party was in power they introduced a new Deregulation Taskforce, doubling down on the neoliberal policies that caused the crisis. In this context ASIC regulators James Shipton and Daniel Crennan (who had started to actually pursue criminal corporate activity in the wake of the banking royal commission) and Australia Post CEO Christine Holgate (who was pushing a public postal bank) were ousted. Similarly, a push for a renewed commitment to economic rationalism is underway in Victoria. The RBA’s forced recession is feeding a pressure campaign over Victoria’s debt, including from former premier Jeff Kennett and treasurer Alan Stockdale—the authors of Victoria’s disaster when they privatised the state to death in the 1990s. (“Don’t let Kennett loose on Victoria again”, AAS, 27 Nov.) Current Labor Premier Jacinta Allan is scoping out possible asset sales—of the few remaining physical assets—and “monetisation of revenue streams”. It’s time to break the yin-yang of Labor-Liberal policy which keeps us locked into this disastrous neoliberal economic consensus.

Australian Alert Service, 17 December 2024