The Reserve Bank review, so we’re told, holds out the promise of “profound change” — change so striking, so sweeping, that it constitutes a “watershed moment” not unlike that which grounded the decision to float the dollar in the early 1980s.
“I think this will be one of the real legacies of the current government,” Isaac Gross, a former Reserve Bank economist who now lectures at Monash University, declared on RN. The recommendation to strip the Reserve Bank board of its power to set interest rates and instead repose that power in a new expert committee is, he added, “something that all Australians will benefit from”.
Others, by contrast, have resisted the idea that the review’s findings are in any way radical, framing the notion of this “shake-up” to the usual order of things as a triumph of theatre over substance. If anything, shrugged Reserve Bank governor Philip Lowe, the review’s recommendations are “kind of excellent” and won’t alter the prevailing approach of the central bank to inflation. Nothing much to see here, in other words.
But it’s possible the claims on both sides are overstating things in different ways. Zoom out a little, and it’s clear the review does in fact shift the dial with some surprising, even radical, recommendations, though not in the sense championed by Gross or downplayed by Lowe.
Zoom out further still and the picture that quickly emerges is a review bent on entrenching the power of neoliberalism in Australia — an impression reinforced by the Albanese government’s ready in-principle embrace of the review and its corresponding indifference, if not contempt, for the unemployed and the nation’s swelling class of renters.
For one thing, the review in no way interrogated the presumed efficacy of orthodox monetary policy. On the contrary, as economist and Torrens University associate professor Steven Hail told Crikey, it falsely assumed its underlying neoliberal logic was and remains sound.
“There’s simply no empirical or historical evidence that manipulating interest rates is the most successful way to try to manage inflation — none,” he said. “But the review doesn’t acknowledge this.”
“Nor does it consider whether a combination of fiscal policies and competition laws, such as a more aggressive approach to monopolists, would be better suited to managing demand and inflationary pressure.”
Instead, the review holds fast to that enduring but deeply confused and unsophisticated narrative that the one and only way to cruel climbing inflation is to punish low- and middle-income households by jamming up interest rates.
It’s confused because it supposes all inflation is driven by demand-side issues when the reality is otherwise, as the link between today’s inflation and supply-side disruptions such as the Ukraine war and climate change attest. Confused, also, because the Reserve Bank is aware it can’t plausibly exert any control over supply-side disruptions, yet its monetary policy furiously pretends otherwise.
And unsophisticated, because, quite aside from its penchant for invoking the unrealistic spectre of spooky, ’70-style wage-price spirals despite years of falling real wages, it pays no heed to the indirect and complex impact of raising interest rates on the economy — including, for instance, the demonstrated tendency of monopolists in a concentrated and uncompetitive market like Australia’s to profiteer from the inflation crisis.
Stepping back, the full, untrammelled narrative scarcely holds together, and yet the government has endorsed it in all its glory. Indeed, the government seems minded to go further, as at least two other recommendations of the review suggest.
The first is the proposal to jettison the central bank’s dormant power to guide or determine the lending practices of private banks — a power that could, theoretically speaking, have one day been enlivened again to assist the country’s transition to a low-carbon economy.
The second and arguably more profound is the proposal to abolish the government’s post-war Chifley power to overrule the Reserve Bank’s decisions on interest rates, including in times of crisis: “While no Australian government has used these override powers, there is the possibility that established conventions cease to be observed,” the review states, without citing any evidence.
But this ignores the point of the power, which is to provide some level of democratic oversight and residual control over one of the most significant and powerful policy settings in the country.
“Political power, its management and employment in office, must, in a working democracy, take precedence over any subordinate bureaucratic structure,” former prime minister Paul Keating told the ABC.
“The RBA has always suffered from institutional inertia — it was always too slow in lifting rates to manage bursts of activity, as it has been in getting rates down as activity moderated.”
Greens treasury spokesperson Senator Nick McKim was of a similar view, characterising the recommendation as the “final capitulation to neoliberal groupthink” and one that would mean the government lacked any “recourse over an RBA board that goes rogue”.
“[This] would totally cede monetary policy to the central banker’s club that has done nothing to stop rising inequality or the breakdown of the planet’s climate,” he said.
Taken together, the recommendations formally deprive the central bank of some of its historical roles, pushing it further into a territory where, according to Hail, it’s seen as little more than the putatively independent though soon-to-be unaccountable “arbiter of the target cash rate related to inflation”.
All of which brings to the fore the thorny and painful implications of the Reserve Bank’s refashioned role in the lives of thousands of ordinary Australians.
Perhaps the most important point is that even if its inflation model worked precisely as theorised, it’s something that inexorably exacts a high human cost. The permanent or “natural” rate of unemployment the Reserve Bank says it requires to suppress wages and inflation is already a testament to this reality, as is the blunt tool it brandishes against low- and middle-income earners to keep the unemployment rate between 4–7%.
The reason the Reserve Bank jacks up interest rates when inflation climbs too high, to be clear, owes entirely to its desire to cool the economy, which is just a euphemism for lowered demand achieved via thousands of job losses and real wage cuts for the rest.
Commonly lost in the Reserve Bank’s rhetoric, however, is the uneven impact of its rate rises, which invariably and disproportionately affect low- and middle-income earners, particularly young people with mortgages and, not least, renters across all generations.
In the 12 months since the central bank started raising interest rates, rents have soared on average by 10% — far exceeding the general rate of inflation, which was 6.8% in the year to February.
Among those renting, it bears emphasising, are the working poor and the welfare recipients, including those on JobSeeker, whether transitory or notionally part of the Reserve Bank’s Orwellian pool of the permanently unemployed. On current forecasts, hundreds of thousands more are destined to join the ranks of the latter in coming months as the full impact of the Reserve Bank’s war on inflation rears its ugly head.
Which at this juncture says something altogether tragic about the Albanese government’s philosophical approach to the economy and society. On the one hand, it has thrown its political weight behind a monetary policy that necessarily condemns hundreds of thousands to JobSeeker and many more to the brink. At the same time, it has refused to raise JobSeeker and like allowances to the poverty line — lest it be inflationary — but so too refused to jettison its stage three tax cuts.
The circuity of this thinking would, on any view, be quaintly amusing were it not for its heavy human consequences. There are, of course, some who still hold to the altogether charitable narrative that Labor is merely playing the kind of small-target strategy the politics of today demands. But these considerations, coupled with its absence of any credible housing policy, yield a different tale.
The political chapter unfolding before our eyes tells the story of a once progressive party now so comfortable with pathological levels of inequality that it risks becoming institutionally engraved onto its soul.
As Hail put it: “Margaret Thatcher was once asked to give her greatest achievement, and she said Tony Blair. And now I think she could equally have said the modern Australian Labor Party.”
Will anything come of the RBA review? Has Labor lost its way? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
Put the filth out of a job come the next election.
I want to see wall-to-wall Greens and independents.
There have been some signs of the mugs waking up to the scam, but we’re gonna need about 1000% more of it.
Spread the word! Only mugs for for the majors.
EDIT BUTTON PLZ
Agree from an ever less and less and probably now ex rusted on Labor supporter. They are just not delivering the goods. They have the chance now to be bold but they are either being way too timid or as the article suggests they are completely lost to the neoliberal sickness.
agree with all of that!
I would normally agree but have you seen or experienced the fruit loops that pass for the NSW Greens. I will provide you with their much-vaunted Transport Policy.” AIMS. Part C: Integrated Planning. Point 53. Oppose the construction of any new large jet airport within the Sydney basin airshed and support the commencement of a process to identify a potential site for the relocation of Kingsford Smith Airport to outside the Sydney basin, taking into account stringent environmental and social criteria.”
It doesn’t matter that you think it doesn’t matter because it doesn’t affect you and you will vote Independent and Green anyway. The fact is that a policy like this will lead to the loss of tens of thousands of jobs with no clear constructive policy to replace it. Others will see it differently.
There are major political parties for a reason and while, I agree, that they leave a great deal to be desired to put it mildly, the minor parties, even those on the Left, are capable of producing policies which are just as unequal and unworkable and unsustainable as those of the Left-Centre (ALP) and the Centre-Right to Far Right (Liberal-National Coalition).
There are far fewer people involved in the Greens than the major parties, and they’re working with far fewer resources.
If the Greens were an established major party, they’d be in a position to leverage what public sector expertise has survived the great disinvestment, and offer sounder policies.
Don’t throw the baby out with the bathwater.
He’s just cherry picking policies he doesn’t like.
Plenty of batsh!t crazy ideas to be found in the major parties as well. Like the ALP’s recent agreement to recognise Indian University degrees as equivalent qualifications to local ones.
Pretty important policy as it has been part of their platform since 1984. Dopey is as dopey does.
That’s a poor excuse for sticking with a shitty policy.
Other than… the replacement airport ?
No mate. You don’t get it. The NSW Greens haven’t identified a replacement airport yet because they can’t agree where such an airport should be placed and they have the issue with Bankstown and other minor airports which are operational and conflict and coincide with their policy here. The Greens cynically don’t want to nominate a site for fear of generating opposition to their proposal. In fact, the environmental cost of taking down Mascot and building another one would be environmentally costly with all the asbestos and poisons present in the Mascot airport site having to be removed or remediated. You will be aware that the NSW Greens oppose Badgerys Creek Airport as well. They don’t know what to do other than curry favour with their lilly-livered wimpy nimby inner city friends who haven’t done a decent day’s work in their lives.
I cannot believe how you obsess over this nothingburger policy to begin thinking about looking for a location to relocate the airport.
The idea that the existing airport would be shut down without a replacement already up and running for years is beyond risible.
yeah, well it’s there in Greens policy and work notes I have in my possession. I even have not and comments from some of their working groups that want Gold Coast and Melbourne and Canberra airports to take over from Sydney. Now that’s risible. Remember that this party is seeking to be an alternative. They must be subject to scrutiny.
The Labor party could once have safely taken me for granted. Not so anymore. Looking for a small party or independant for next time.
Can only agree. Over forty years of voting Labor, and what have I got for it? Arguably more than voting Liberal, but not much more. The party that was supposed to look after the blue collar, the disenfranchised, and the vulnerable has chosen to go with money and convenience. I’ve used this quote before from Orwell: ‘The creatures outside looked from pig to man, and from man to pig, and from pig to man again, but already it was impossible to say which was which.’
There seem to be few votes in looking after the vulnerable – obviously the vulnerable themselves (though even that is not guaranteed), old style progressives, Rundles “knowledge class” (though his definition seems to rely on cherry picking) – more broadly which voters put “being decent” ahead of their own self interest? If they were a majority we shouldn’t have this problem.
Otherwise is there a disconnect within politics itself – ie the majority is there but once in power influence is bought to bear and we get “small target” government.
I’m truely at a loss.
The pigs are the kinder ones…
Fool me once, shame on you
Fool me twice…
Can anyone think of any credible reason Australians will benefit, or show any evidence? The ‘new’ model that separates the Reserve Bank from the committee that sets interest rates is the model used in several countries that have managed their current inflation crisis worse than Australia. We are fixing the system we’ve got by adopting one that is demonstrably inferior. And then, as the article says, we are giving up any possibility of asserting democratic control if it all goes horribly wrong. That’s about as clever as our governments’ habit of signing up to Investor-state dispute settlement (ISDS) in our trade agreements. Why are our elected representatives trying to give up the possibility of controlling our own policies and placing power in unelected hands with inscrutable loyalties and no oversight?
Well said. I’m keeping an eye out for other examples of reviews of public institutions that recommend resorting to ‘expert panels’ instead of the government and public sector simply being set up to succeed and take responsibility for what they are meant to be doing.
Expert panels can easily be stacked, or unconsciously become composed of like-minded minded individuals known to each other who self-select. It is much easier to be a ‘respected’, ‘highly regarded’ or ’eminent’ expert if you are a privileged, old, white dude. Women, people of colour, and people from other minoritised social groups are much less likely to be viewed as experts, regardless of capability – and when they are at the fore all too often it’s because they have the patronage of a privileged, old, white dude.
This is like the AusAID model. It used to employ development experts to design and manage projects. Now it just contracts out to NGOs.
You’d swear it’s a Tory government move.
It’s the ultimate development of privatisation – now even core government functions are contracted out to those with a vested interest.
The point is to be able to shift blame and remove those in Government from responsibility of outcomes.
“We were just following the advice given. It’s not our fault, it’s theirs.”
The same attitude is rampant throughout the private sector. By creating a complex web of finger-pointing, decision-makers are insulated from both a) having to really know anything about the decision they’re making and b) responsibility for any negative outcomes.
Nobody should be surprised. All the progressive parties here and elsewhere never take the hard decisions that those who supported them expect. While the right brazenly takes every opportunity to feather it’s own nest while staring down it’s critics the progressives quake in fear of the slightest criticism. An increase in welfare payments and dumping of Morrison’s self serving tax cuts should be a no brainer, but no, can’t risk the criticism from a handful of Murdoch columnists. Weak as p…
In my experience people default to projecting their beliefs and values onto others.
That’s why progressives think they can reason and comrpomise with conservatives, and conservatives think progressives want to destroy them.
Hmmm… I think I’m the conservatives kind of progressive…
Had it occurred to you that progressive organisations have been infiltrated by people who oppose them?
It appears that watching Morrison gaslight the country with such a straight face, that Albanese has taken lessons. Time for a change in the way we govern ourselves – this time a MASSIVE roll out of independents that makes this kind of bs impossible.
So far we’ve only really had a Teal rollout and they look like EU style centre right pollies. What would a “Brown” (Green+Red) set of independents looklike?
Why would they run as indies when they could join the Greens ?
I mean sure, the Greens have a bit of the neoliberals, but it’s a long way from metastasising.
And it’s not like the electorates they’d be targeting have the same relative problem that the electorates the Teals targeted did (lots of people who would never vote Labor, despite contemporary Labor being largely indistinguishable from a moderate centre-right liberal party).