Deputy Reserve Bank governor Michele Bullock will become governor of the RBA from September 18, Prime Minister Anthony Albanese announced this morning, making her the first female governor of Australia’s central bank. Her appointment will bring to an end Philip Lowe’s seven-year stint in the role, which has encompassed the most tumultuous economic period for Australia in recent decades.
Treasurer Jim Chalmers refused to be drawn by the media on the reasons for Lowe not being reappointed, beyond saying he believed Bullock was the best person to lead the RBA into the future — reflecting the need to implement the recommendations of the government’s Reserve Bank review released earlier this year.
The unanimous view of Lowe, across all varieties of economic thinking from inflation hawk to progressive dove, was that he made a spectacular communications blunder in constantly reassuring Australians throughout 2020 and 2021 that interest rates would be unlikely to rise before 2024 at the earliest.
Whether that mistake was enough to rule out extending his term as governor after seven years is a separate debate, but it’s the central charge against him — so the orthodoxy goes.
But Lowe’s flaws went beyond what could be characterised as a mistake born of good intentions in the midst of the unprecedented circumstances of a global pandemic, during which all manner of rule books were torn up. Things recovered much more quickly than expected — partly because of the RBA’s rapid monetary policy response, which Lowe engineered — so a change in policy was needed much more quickly. Lowe was, perhaps, a victim of his own success in responding to the pandemic.
Under his leadership, he and the RBA have been criticised for holding interest rates too high before the pandemic while inflation dragged along below the bank’s target band. Yet Lowe demonstrated some welcome willingness to break with monetary policy orthodoxy after taking over as governor in 2016, on two key issues.
As the RBA has now admitted, its wages growth forecasting for most of the past decade was badly off — it constantly predicted wages growth taking off the quarter after next, when it flatlined below 2.5% after early 2015. While the Coalition government, business and its media cheerleaders were perfectly content with wages stagnating, and perpetuated the myth that growth was just around the corner, Lowe realised persistent stagnation was a problem, began wondering why, and chose to do something about it.
He highlighted poor wages growth as a structural, not temporary, economic problem; repeatedly criticised governments for failing to encourage growth through the most direct lever they had, public sector wages; said he wanted to see pay rises above 3%; and warned that if stagnation persisted, it would undermine community support for difficult economic decisions. None of those statements pleased either business or the Coalition.
Lowe was also vocal about the need to boost the economy with looser fiscal policy, especially after the RBA began cutting interest rates in 2019 — to the fury of neoliberals and the Morrison government, which insisted to voters an economy visibly struggling with low growth was in fact “strong”, and that the budget was “back in black” after years of deficits.
However, once inflation began to rise in the wake of pandemic disruptions to supply chains, over-stimulus from governments and the Ukraine war, Lowe made a high-speed retreat into neoliberal orthodoxy. Gone was the urging for higher wages — workers should now suffer real wage cuts, he insisted, and any push for higher wages in the face of plunging spending power for households would be economically disastrous.
As wages growth belatedly crept above 3% — still far below inflation — Lowe became increasingly agitated and began warning of a wages-price spiral, straight from the 1970s economic textbooks, in defiance of all evidence.
Lowe and the RBA rapidly developed a blind spot for what other central banks such as the European Central Bank and US Federal Reserve were acknowledging: that profit-gouging by firms drove most of the inflation of 2021 and 2022, not wages.
Recent weeks have been particularly humiliating for Lowe and the RBA as the Bank of International Settlements, the International Monetary Fund — traditionally the home of hardline neoliberalism — and the OECD have all produced evidence of the significant role of profiteering in inflation globally (and, in the case of the OECD, in Australia).
Lowe’s program of constant interest rate hikes aimed at increasing unemployment, driving down wages and crimping demand was based on a falsehood — one he has constantly refused to acknowledge.
The Lowe of 2019 might have approached it differently: a more modest program of interest rate rises (rises were needed, after all, as rates were at emergency lows), jawboning of governments to tighten fiscal policy, and calling for governments to address profiteering using their available levers — just as he called for governments to use their available levers on wage stagnation and low economic growth.
That never happened.
Lowe’s arguably understandable miscommunications of 2020 and 2021, coupled with cack-handed interventions such as urging workers to take extra shifts to cope with inflation, pale into insignificance compared to his refusal to acknowledge profiteering in inflation, and his determination that it is workers who must be punished for inflation. Fairly or unfairly, that will be his legacy.
Did Philip Lowe leave a legacy to be proud of? Let us know 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.
Lowe is the ultimate RBA economist grown in a test-tube and then kept in an institutional bubble his entire adult life. It’s amazing he is able to communicate at all with any other sentient being that has to eke out an existence. He, like his predecessor and soon to be successor, are ultimately fundamentally bound in defending a philosophical/political/economic approach that is continually threatening to implode from the weight of its own internal contradictions, hypocrisy and inequity.
It doesn’t even have to be price gouging on the part of companies. The seemingly benign act of a business seeking only to maintain its profit margins in the face of increasing input costs is of itself at the core of the inequity and hypocrisy of the monetary policy’s broad instrument of interest rates.
Workers with debt are not granted the same power of a business to maintain their disposable income or household surpluses as interest rates increase, which they can do by demanding more pay for their labour (just as a business demands higher prices to maintain its own profit margin).
Instead, workers are expected to man the front line in reducing their own expectations and expenditure, even if that means being forced to offload essential assets such as their home. There are no such accordant expectation on the part of the RBA for businesses to go over the trenches first and take a hit to their own profits. That may come as collateral damage from a recession, but that will only be once the battlefield is piled high with the bodies of broken workers.
Nor is there any expectation on the part of company boards or ASIC for businesses to adequately provision for leaner times by retaining a greater share of profits on their balance sheet. Shareholders bear relatively little of the pain of these market adjustments in terms of income, notwithstanding some increased short-term share price volatility which will ultimately unwind in their favour.
Where is the narrative of shared pain, of a communal effort in all of this ?
The entire system is a farce, and tragically the Labor Party are now destined to perpetuate it.
Holy sh… beautifully written JulesAnjim. The thing I’D love to see someone at Crikey writing about, is the connection between demonising the unemployed as bludgers on our hard earned cash and the Reserve Bank admitting that they were increasing interest rates until unemployment increased. That underlines what you said here. Since a proportion of the population being unemployed is seemingly essential to keeping inflation down with their crappy economic modelling, then unemployment support that is so far below the poverty line is cruel and inhuman punishment for the blameless recipients of the reserve bank’s and government’s policies.
It is the ancient and dark art of scapegoating; it used to be heretics, the disabled, old women, witches, etc. Now it is the unemployed
Concisely explained, Jules.
Well written but would’ve been improved by the removal of the first two sentences. There’s no justification for being personal about the RBA Governor, whoever they are.
As the rest of your piece notes, “the entire system is a farce”. The governor of the RBA, dislikeable as s/he may be, has only a dated interest rate throttle to solve an essentially complex and political clusterfork. Any words they utter invariably fall on deaf ears. Interest rate changes act against themselves: young homeowners (homedebtors) endure pain and reduce spending while older homeowners earn extra income on their surplus and increase spending.
Well said. Corporations first; citizens second. That’s the LNP/Labor duopoly way. And the new Governor is from the same incubator, and has even told the truth about how unemployment MUST rise.
Lowe also let the cat out of the bag in 2021, which is also why he’s being punished. He admitted that the Big Australia policy was designed to suppress wage growth. Can’t have the public know the truth about NAIRU (just watch Michelle Bullock strive with all her might to raise the unemployment rate)
Thanks to the closed borders. Tightening labour pool saw wages growth start to lift. After over a decade of getting it wrong, it finally happened.
What other tool did the RBA have? The government refuses to apply proper fiscal policy to clean up after the Liberals because it means we’d have to talk about tax. Can’t have that.
Lowe has literally been made the scapegoat for the failures of the system. But no-one wants to attack the system.
One of a cluster. A media led lynch-mob taking out their frustrations and attacking Lowe is easier.
Crikey seems to be joining in.
Tell me about it.
One thing to bear in mind………………
When the world’s central bankers got together, they stopped and listened when Philip Lowe talked.
He was impeccably qualified and knew what he was talking about.
Can you imagine ANYONE being even vaguely interested in anything our Politicians had to say?
Most particularly the Treasurer Lowe had to put up with, the singularly ill-equipped Frydenberg who knew precisely NOTHING about how the economy worked………….
…….and never tired of demonstrating it.
Bernard was approaching the true reason for the interest rate roller-coaster of the last few years but drifted off-target.
The proximate cause for this whole disaster (and the concomitant asset price inflation – think housing) was the Abbott “government” blind ideological pursuit of the totally mythical “balanced budget”.
Without having the slightest conception that budgets could, and should, ONLY be balanced over time, rather than pursuing it as an unalterable objective, the LNP persisted in sucking money out of the economy despite the continual and repeated warnings by consecutive RBA Governors that they would trash the economy, and leaving the RBA NO OPTION but to pull the only lever they have, interest rates, in an effort to keep the economy alive.
The proof that they were right arrived at exactly the same time as COVID………..
…….the economy was about to fall into recession for the first time in thirty years, despite the constant bleating of the pitifully ill-equipped treasurer Frydenberg about “Back in The Black”.
The consequences of the necessity of the RBA cutting rates FOURTEEN TIMES IN SUCCESSION are still playing out today and will do so for many years, as they really have no choice other than to try to get interest rates back to their long-term level before the NEXT time the wheels drop off (as they most certainly will do).
Lowe is one of the the many, many, MANY victims of LNP ideology.
“Governments make the mess, someone else has to clean up after them – as it was in the beginning is now and ever shall be.”
“Blessed are the gullible, for they shall inherit exactly what they deserve”
You can vote on it.
Well said.
Labor should have got rid of him as soon as they came to office. He is a Liberal Party stooge. Who else would keep interest rates at record lows for years? Who else would start raising them when the public had had enough of said Liberals so Labor gets the blame for future rises? The very fact he didn’t raise interest rates at the start of 2022 should give enough pause for thought among Labor that this guy favours the Liberals.
Meh????????????
Nonsense.
Lowe (and his predecessor) went as blunt as they could in warning the LNP what their ideology would do to the economy, and took the ONLY action they could to try to avoid it.
Far from being a Liberal stooge, he was hated by the LNP.
I agree with you that Lowe is a political stooge. But it’s not just the libs who want high house prices, it’s Labor too. Many Labor MPs have multiple investment properties and, especially after the 2004 pensions reforms, most politicians see property appreciation as their retirement ticket. So they really want low interest rates.
No Mr Keane, his real legacy will be yet further distrust of ‘boffins’ who ignore the plight of the ordinary people and the rotten politicians who are paid to represent their electorates, not their business partners and corporate donors. As trust in our government erodes, it will encourage the growth of far right groups, terrorists and anti-everything non-thinkers.
If you treat the electorate’s money like your personal piggybank while cutting welfare, public services and infrastructure spending you can expect that eventually those same people will turn on you with their teeth bared and their pitchforks at the ready.
Does no-one read history anymore? The legacy of this blindness will be instability, anger and violence.
Come now, GG, we are supposed to be getting some rusty old nuclear submarines for our loyalty to the great duopoly. We can now sleep peacefully in our beds knowing that all is right with the world and our political masters.
Sleep peacefully knowing that when their nuc’s detonate in our harbour we’ll have a rapid, painless exit from Planet Earth ?
Ummm…………….
Cutting welfare, public services and infrastructure spending are nothing whatsoever to do with the RBA.
That was the sole remit if the LNP (who made the most of the opportunity).
Dear Mr Thucydides, Duh. If you had read my post you would realise that it also has little to do with the RBA, the members of whose board are cut from the same cloth as the ‘rotten politicians’ (most of whom, as you correctly point out, have been members of the Coalition) I referred to. None of them choose the wellbeing of the public over ‘the economy’ and all of them are viable targets for a well-aimed pitchfork.
Hi MsG,
I’m not disagreeing with the principles, only that the target was unclear……………..
……………rest assured that the tines of my pitchfork are honed to gleaming needles and I keep a flaming torch close-handy around the clock, just on the off-chance.
Well done you. Always best to be prepared.
I’m sure Bunnings will have a sale on them when the time comes…
Yup. The whole Board are likely IPA.
True up to a point. The RBA can’t do anything about these things, but it can speak out about them and chooses not to do so. The RBA Charter still states they’re supposed to be furthering the material well-being of all Australians.
I am sure he will land a plum job at one of the big four banks. Very entitled, is Dr Lowe. A fat pension, no debts, and countless lucrative job offers coming his way. He is a millionaire who will be enjoying his Pina Coladas while the rest of us wonder how we are going to make ends meet.
While comfortably paying off his half price mortgage from the Reserve Bank (a perk of the job), on a 5 bedroom house, in a swanky suburb of Sydney. Me, I’m living in my car, not able to even get a $500 credit card, simply because I’m on WorkCover.
Commiserations Kat. Sorry to hear that… <3