Today I have been working with various datasets (labour costs, long-term unemployment) and this blog provides some interesting aspects of what is going on at present. The blog should also be seen in the context of a speech made yesterday by the Deputy Governor of the Reserve Bank of Australia (RBA), Ric Battellino (a NAIRU devotee) to the Committee for Economic Development of Australia in Perth. His presentation was intending to justify the interest rate hikes that the RBA has been pursuing this year. He continued to assert the RBA line that the Australian economy is running out of spare capacity and so interest rate hikes are necessary. This is in the context of a sharp rise in the exchange rate which is deflationary, actual falls in the inflation rate (and well within their “target band”), more than 12.5 per cent of available labour resources remaining idle and long-term unemployment rising because employment growth can barely keep pace with labour force growth. Macroeconomic policy in Australia is severely distorted at the moment because of the dominance of monetary policy and the obsessions about budget surpluses. In summary, the NAIRU mantra is preventing good macroeconomic policy and the growing pool of long-term unemployed are carrying the burden more than most.