I asked him: ‘Supposing the pope looked up and saw a cloud and said ‘It’s going to rain’, would that be bound to happen?’
Father Mowbray on Rex Mottram, Brideshead Revisited
‘Oh, yes, Father.’
‘But supposing it didn’t?’
He thought a moment and said, “I suppose it would be sort of raining spiritually, only we were too sinful to see it.’”
Be grateful the Reserve Bank didn’t lift interest rates yesterday. You may think that the economy is struggling just to draw breath, but don’t be fooled — there is “continuing excess demand in the economy”.
This may seem curious, given that the national accounts for the December quarter showed household demand rose just 0.1%, monthly household spending was in the doldrums in January, and the Australian Bureau of Statistics described January retail sales figures as “stalling”.
Indeed, even the RBA admits that “the December quarter national accounts data confirmed growth has slowed”. Not, of course, that this has anything to do with the RBA and its unnecessary, ideologically motivated rate hike in November led by a newbie governor anxious to impress financial markets.
But excess demand is, nonetheless, a problem.
“There are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand,” governor Michele Bullock thoughtfully offers in her post-meeting statement. The labour market remains tight, she laments as well. She sees “conditions in the labour market continue to ease gradually, although they remain tighter than is consistent with sustained full employment and inflation at target”.
That is, we’re going to need more unemployment before anyone gets an interest rate cut.
On the more positive note for Bullock, she says “wages growth picked up a little further in the December quarter, but appears to have peaked with indications it will moderate over the year ahead.” Phew — thank goodness workers only got five minutes of economic sunshine after a decade of wage stagnation and 18 months of big real wage cuts. Still, watch out — the “level of wages growth remains consistent with the inflation target only on the assumption that productivity growth increases to around its long-run average”.
Seems like Bullock hasn’t gotten around to reading the Productivity Commission’s recent dissection of the “productivity crisis” myth. But, to her credit, she rejected the absurd Financial Review effort to hype last week’s welcome final aged care remuneration decision by the Fair Work Commission as inflationary, describing the pay rise as very worthy and unlikely to make a “measurable” difference to inflation. Beating up on aged care workers is a step too far at the RBA, if not in the media.
But what’s driving the excess demand if, by the admission even of the RBA, “household consumption growth remains particularly weak”? Is the famous “business liaison” of the RBA telling them that business investment is going berserk? Has falling public investment in the December quarter turned around this quarter and is now going great guns?
Or perhaps, like Rex Mottram, we are just too sinful to see the excess demand? Like the wage-price spiral forever imminently about to erupt, and the lazy workers causing a productivity crisis, perhaps it’s a phenomenon that only the most holy of monetary authorities can perceive from their vantage point on the economy at Martin Place, while the rest of us are seduced by devilish delusions of gouging businesses and wages decoupling from productivity in exactly the opposite way to that claimed by business.
In which case, we can only join Augustine in urging the Lord to make us pure — just not yet.
We’ll have a golden future as soon as everyone is completely miserable. What a great system we have.
No ones got any money to spend on retail because it all goes on housing. We must punish those people who want a roof over their heads.
I lost the rationale somewhere, why is it best to increase profit for banks in order to lower inflation. This only works because strangely housing doesn’t count as a cost of living, otherwise this is plainly inflationary. Doesn’t every business including landlords with a loan have to put up prices to cover the extra cost?
Please excuse my ignorance
Everyone with a job has super, it does sound difficult but wouldn’t it be better to increase tax to have a similar cost as interest rates and direct that into super. That would increase capital for business with shareholders. The next step would be to legislate that that money went into research, development and training, with a strong bias toward climate change mitigation. There would need to be exemptions for people who couldn’t afford the tax, business would benefit directly if they comply and the money would effectively go into the countries future.
The “tax” being neoliberal terminology for increasing super contributions from workers.
One negative is that this almost guarantees the companies’ who shares are invested in , too big to fail status, giving them unfair influence of government and removing a basic tenant of capitalism, fair competition.
A better way would be renewable energy and environmental protection that was publicly owned. Very hard to protect from neoliberal future governments. Either way the extra super needs a guarantee that it will be there for retirement.
Everything looks like a nail.
We have excess demand because of excess population growth – reign in migration and the pressure on housing, infrastructure, and the environment quickly disappears.
The only “laziness” in the economy are lazy business owners stacking up with cheap workers rather than improving processes and investment – basically the class backed by the media.
And the Biz lobby announced this morning that ‘wage increases’ are a thing of the past – though which century was not specified.
So long as mass migration continues, the chances of better conditions and higher pay are somewhat less than Buckley’s zero.
The RBA has systematically wrecked the post Hawke-Keating economy for decades.
Nothing has really changed except BK and fellow travelers (Gittins, Pascoe et al) have finally worked it out.