Liquidate labour, liquidate stocks, liquidate the farmers, liquidate real estate. Purge the rottenness out of the system.
Andrew Mellon, 1931, via Herbert Hoover
The Reserve Bank and its governor Philip Lowe have infuriated Australia’s remaining neoliberals by cutting interest rates. And unfortunately for the latter, there’s more to come.
After yesterday afternoon’s rate cut to 1.25%, Lowe last night flagged that another rate cut was likely — if not next month, then before the end of the year.
“The board has not yet made a decision,” he said in a board dinner speech, “but it is not unreasonable to expect a lower cash rate. Our latest set of forecasts were prepared on the assumption that the cash rate would follow the path implied by market pricing, which was for the cash rate to be around 1 per cent by the end of the year.”
The need for stimulus for the so-called “strong economy” was demonstrated three hours before the bank cut rates yesterday when the Australian Bureau of Statistics released April retail sales data. That showed a surprising fall of 0.1% (the market had been expecting a 0.3% rise). Worse was what is happening in NSW, where retail sales fell 0.4% in seasonally adjusted terms. And the decision was confirmed by today’s GDP numbers, showing the economy grew a miserable 0.4% in the March quarter, mainly because of government spending, bringing annual growth down below 2% to 1.8%, its lowest levels since the aftermath of the financial crisis.
There was better news on the current account deficit: the March quarter deficit fell sharply, thanks to the highest trade surplus ever recorded in a quarter. That added 0.2 percentage points to the GDP data and pushed our terms of trade up 3.1%, on top of the same in the December quarter, thanks to higher iron ore prices and the slightly weaker dollar.
That’s fantastic for the tax revenues of Western Australia and the Commonwealth, but is doing nothing to boost activity elsewhere in the economy. There’s no lift in investment, there’s no boost to wages, there’s no general feeling of prosperity to buoy consumers facing a decade of stagnant wages.
For neoliberals and industrial relations hardliners, however, the interest rate cut is a disaster. Despite the growing evidence over the last year that the next interest rate cut could be down, not up, The Australian Financial Review has been pushing for a significant tightening of monetary policy, repeatedly going to neoliberal economists Warwick McKibbin and Warren Hogan, and whatever screenjockeys and CEOs could be found to support them, for justification.
That justification has been entirely ideological — that low interest rates are a kind of policy laziness, an “ultra-cheap money tonic” to which we’d become addicted. Interest rates needed to be lifted, “even if it comes at the cost reaching full employment”, as Hogan insisted.
What the neoliberals wanted, beyond a punitive rate increase that would purge the rottenness from the system, was further economic reform. Not the kind of actual reform identified by the Productivity Commission, when it was asked by the government what was needed to lift Australia’s faltering productivity growth — like improving Australia’s human capital through more effective health and education funding, or a carbon price to get emissions down. They’re pushing for the sort of reform business wants — workplace deregulation and lower company taxes. In its editorial today attacking the rate cut, the AFR trotted out this line yet again. Michael Stutchbury and co. want “reforms to the tax system, to workplace regulation” that will avoid us “being dragged into a disturbing ultra-low interest rate world”.
This splendidly demonstrates how obtuse neoliberals are. It is exactly their policy prescriptions that have given us this “disturbing ultra-low interest rate world” — a world in which corporations are so powerful and governments so disempowered they can push down wages, refuse to pay tax and treat customers — including other business — with contempt, all while throwing money at shareholders instead of investing it.
It’s a world in which the only innovation on display from many Australian companies is in their methods for encouraging politicians to give them handouts or change regulations for them. One in which voters, deeply angered by wage stagnation and unfair tax systems, refuse to cop any more of the kind of deregulatory reforms that have entrenched the power of the companies the AFR reflexively supports.
But neoliberals can only think of one thing: liquidate, liquidate, liquidate.
Can someone please explain to this layman how cutting already low interest rates will help the economy when the previous cuts have achieved the current weakened economy.
Anyone…?
Tumbleweeds, Zuts. The Reserve broke the monetary lever clean off the gearbox many long, easy quarters ago. Poor Hapless Phil is now reduced to waving it at the banks like a ridiculous little twig from the front pages of the papers. It’s nearly as pathetic as Affable Josh going all gangsta on the ANZ. Can’t wait to see what names he calls us mere punters when our refusal to slap yet another flat screen from Harvey on the VISA starts to eat into his surplus. Maybe the Libs can extend the GST to crow and humble pie?
Fine, fine election to lose. Especially to the kind of inane adman slogans ScoMo peddled.
Ahoy, Jack. For months I had been pondering investing in a whizbang new home theatre system but now refuse to buy anything lest these economic dunderheads think their cuts are working.
Buy it off the back of a Hilux for cash like the rest of us, Zuts. Only way to sidestep these incompetent, ticket-clipping cretins…and it’s only fair, after all – since they casualised, rationalised and productivised most of us out of the civilised capital-n-labour shared marketplace decades ago.
No sick leave, no annual leave, no penalty rates, no reasonably GDP-tethered, wealth-sharing wage-setting? Then no GST or PAYE for you, Josho, me old diamond geezer. You trickle down on me, matey, then I’ll p*ss back up on you. And poor Phil and the ABS wonder why nothing is joined up anymore…
Ah…Ain’t ‘no society’ grand, Maggie.
LOL
Another TV, a 4K or soon to be an 8K if only there was anything worth watching as free to air sinks deeper into reality drivel and more and more repeats.
The intention is to lift disposable income, especially for people buying their homes but also to increase income for investment in businesses with debt pressures, which is usually small business. Whether this will work is a moot point, especially with the hoped for stimulus to business investment. While low interest rates have accompanied our problem with falling domestic demand on the level of business activity and investment, they are not the cause of it. The fundamental cause is that lower and middle income family spending is falling, due to low wages growth, which is due, in turn, to government policy making above award wages difficult to increase. This fall in income spending is aggravated by the fact that it is not offset by higher income spending by business people as much as it could be, given the strong rise in the profit share of national income, because many business have a large share of their assets owned overseas, where overseas business people spend their personal income.
Bernard is to applauded for calling out the neoliberal nonsense that has got us where we are and I would add the nonsense about small government that leads the Coalition to strangle publicly funded institutions with financial squeezes and lumbers institutions like the NDIS with opaquely administered private operators, who are barely accountable for red tape and delays in bringing funding to the disabled.
Hear hear. Especially re: BK’s (and GD’s) implacable focus along these lines, for a long time now. Very few analysts these days get down off their ideological and/or macroeconomic pedestals, and into the earn-tax-and-spend fiscal dirt like Crikey. Crucial. Especially for the unavoidable recession years now stretching ahead of us all. There will be blood.
Hear hear. Especially re: BK’s (and GD’s) implacable focus along these lines, for a long time now. Very few analysts these days get down off their ideological and/or macroeconomic pedestals, and into the earn-tax-and-spend fiscal dirt like Crikey. Crucial. Especially for the unavoidable recession years now stretching ahead of us all. There will be blood.
And of course inevitably….who do we turn to when the Spiv Rorts run out of juice..?
‘The treasurer, Josh Frydenberg, has held out accelerated infrastructure spending as a possible salve for the Australian economy after growth slowed to 1.8% in the last year, the slowest since 2009.’
I bet anyone a nudie run down Pitt Street with a copy of Capitalisn & Freedom wedged twixt m’buttocks that the first taxpayer handout off the Spivs R Us rank will be….$1billion NAIF for a certain North Queensland railway line…
Greg Jericho at Teh Grauniad is another of the few journos who are down in the dirt sifting through the actual economy.
https://www.theguardian.com/business/grogonomics/2019/jun/06/the-government-has-run-the-economy-into-the-ground
He’s a dab hand at Data Wrap build-your-own tables and graphs especially. Crackingly stark illustrations of our truly rotten, slow-motion-carcrash unfolding predicament…
You won’t hear from anyone zuts and Jack. The underlying theories, always based on high economic philosophy, were always abstract and sophisticated in that sense of having no application in the real world.
Meantime, suckers like me who find themselves with money for the first time in their lives have no reasonable place to store it as rates plummet. The only alternatives, the stockmarket or property just look like the riskiest assets you could sink your hard earned into.
The RBA, full of the smartest people in the room have dealt themselves out. Every interest rate cut signals to the market just how shot the economy is, thereby counteracting any positive effect.
Everyone is hocked to their eyeballs and this has been true since Howard started. It was always a bankrupt proposition that growth is underpinned by groaning debt levels. It was always unsustainable, just as growth based on increased population is unsustainable.
It’s a Muppet apocalypse.
The stimulus amounts to $5 per day for a $1m mortgage, or a little over $1/day for a $250k mortgage.
Can’t see how that will save us!
Seriously ? ” One in which voters, deeply angered by wage stagnation and unfair tax systems, refuse to cop any more of the kind of deregulatory reforms that have entrenched the power of the companies the AFR reflexively supports.” You know the Coalition won the election don’t you ?
Right on, WR…you beat me to it!
Obviously the voters are not angry enough, since the drongo element just voted to return this putrid government for another three years.
I would say: ‘Hope they all enjoy it’…except the rest of us also have to put up with their idiot decisions on this front!!
Its just one of the many Crikey mantras, WR, that a few scribblers seek to present as an Oz-specific case when, in fact, the phenomena is world-wide. To be slightly more generous : its a meager attempt at profundity (for the subscribers).
I’m only here reading the comments. I almost had to have a lie down after (cough) reading the article.
Well done Jack (and not for the first time).
This is a sad time. Our politicians are tinkering at the edges and having clan wars whilst we sail rudderless on the ocean. What will it take for them to start looking at real reforms to the economy, because whilst the seas are turbulent and rapidly changing there are real opportunities for growth. The sad part is that they will continue with there entrenched habits and the country will continue to sink. Even worse , it could see the rise of a “strongman” with dire consequences for all.