RBA Monetary Policy Board member refutes on-going claims from the RBA governor about unemployment

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1. Michele Bullock- “I don’t like to talk about this NAIRU”. Why so shy,Michele? You have obviously been so thoroughly brainwashed by the economic conventional wisdom that you should have no reluctance to join in the current group think. By your actions you will be known.
   While we have brain dead politicians in power (and in opposition) the main problem is in the public “service”. They spend their university years being force fed all sorts of garbage then migrate into government or other influential areas without learning the skill of insightful thinking.
   This is the cohort who scoff at MMT, labeling it the Magic Money Tree.
   Truly, we have an elite who are beyond hopeless,for this and many other reasons.

2. What with Chalmers and the mainstream media today announcing an “improvement in the budget bottom line” (a reduction in the deficit!) and tomorrow’s interest rate rise, we may well ask what planet are we living on.

   It must be becoming obvious that the “stickiness” in the inflation rate that the RBA obsesses over is entirely of its own making.

3. I prefer the use of the term ‘cost-price’ dynamic to explain supply-side inflation. The descriptive term ‘wage-price’ implies it is always rising wages that are to blame for price increases, and that it is excessive wage rises that always cause ‘spirals’, which implies a rising inflation rate.

   Because a spike in inflation almost always has a supply-side origin, it is almost always a spike in costs that triggers a spiral. Rarely is the spike in costs due to excessively rising wages, especially in these days of reduced union coverage and weaker wage-setting institutions.

   If a rise in costs is the usual cause of rising inflation, the RBA Governor should explain why raising interest rates, which increases business funding costs, is not inflation-stoking. What’s the difference between costs rising because of increasing wages and costs rising because of increasing interest payments on borrowed money? Rising interest rates have little impact on aggregate demand because one person’s interest payment on existing borrowed money is another person’s interest income (distributional effects).

   Sure, higher interest rates can reduce the desire for new loans, but this only alters the way people finance their spending, not total spending itself – a greater share of funding from current income and past savings and a smaller share of funding from borrowing. Any increase in spending costs following the adjustment is passed on by businesses in the form of price rises. Workers respond by seeking higher wages. Despite workers often not securing the size of wage increase they would like, it usually maintains the spending power of their income sufficiently to prevent business price rises resulting in declining sales. Consequently, businesses have little to fear from increasing prices and workers have little to fear from higher wages (although more to fear than in the past). Close to the status quo is maintained – not unlike people in a crowd standing on their toes – except with a higher inflation rate. I’ve no doubt that the inflation rate post peak COVID pandemic would have fallen faster had interest rates not been increased, as Japan proved by again going against the global trend.

   As for the quote: “Another key difference from the 1970s is that inflation expectations are better anchored, and less likely to change in response to a temporary inflationary shock … This matters because it reduces the likelihood that a temporary rise in inflation will become embedded in wage and price-setting decisions and develop into a self-sustaining process. Together with changes in the institutional and bargaining environment, these differences have significantly reduced the likelihood of a wage-price spiral in Australia.”

   I’d put it differently. I’d say that inflationary expectations – which refers to people’s desire to respond to inflation as opposed to their capacity to respond – have been suppressed (in Australia by industrial relations reforms and the Prices and Incomes Accord of 1983) with workers less able to have the spending power of their incomes restored by wage increases. It has not only reduced the likelihood of a cost-price spiral, it has contributed to the increase in the share of factor payments to capital and the decline in the share to labour, and therefore the increase in income inequality since the 1980s.

   It also annoys me how some of these people think we should respond to increases in inflation. Inflation is an important macroeconomic ‘price’ signal. When inflation rises, it tells us that something is amiss, not unlike a body temperature of 40C tells there is something wrong with a patient. A doctor will normally investigate the cause of the patient’s high temperature and deal with the cause. People like the RBA Governor think it would be OK to place the patient in an ice-bath and ignore the underlying problem. We’ve seen the undesirable result of this approach for decades. Instead of asking why inflation went through the roof in the 1970s following the oil price hikes of 1973 and 1979 (i.e., a global economy dependent on oil for transportation and food production, which it still is!), governments cut spending in the belief that the high rate of inflation had a demand-side origin. We ended up with high inflation and high unemployment – stagflation. This also masked the glaring deficiency of the global economy, which is still apparent every time oil prices spike and another part of the planet is scorched by a climate change-induced wildfire.

   We also shun the idea of quantitatively limiting the rate of resource throughput to bring the Ecological Footprint back within Biocapacity, not just because it would render it difficult to maintain current levels of GDP, let alone prevent GDP from falling, but because of fears of what it would mean in terms of inflation. Instead, we mask the inflationary effect of rising natural resource prices and waste-generating fees; use the resources we extract profligately; and march towards an ecological precipice! A high rate of inflation caused by throughput caps would be a good thing. Perhaps I wouldn’t have to pick up so many one-time used coffee cups from the streets around my neighbourhood when I go for my daily jog because the price of a takeaway coffee is twice that of coffee in a porcelain cup.

   **

   In an effort to prevent cost-price spirals, workers have been forced to make the biggest sacrifice. Since the spike in costs is almost always the impact of something exposing the structural weaknesses and deficiencies of the economy, everyone but those on a minimum income should share in the sacrifice (i.e., wages and prices rising at a lower rate than an increase in costs). If you think about it, prior to any so-called sacrifice, receivers of factor payments have effectively been enjoying an unearned subsidy. Thus, any sacrifice is really no sacrifice at all. It’s simply the removal of an unjustified privilege.

   How could this be done? I reckon Bill Mitchell and Warren Mosler (Bill and Warren’s Excellent Adventure) are onto something when they talk about the currency-issuer being able to calibrate wages and prices by way of the prices the currency-issuer pays for labour, key natural resources, capital goods, and final goods and services. As it is, the currency-issuer should be more heavily involved in the provision of public goods, merit goods (e.g., public housing to protect low-income people), and maintaining full employment (Job Guarantee).

   Provided the currency-issuer is willing to buy up all unbought crucial things that it purchases and supplies (buffer-stock approach), it could discipline labour (wages) and capital (profits/prices) in such a way as to institute a fairer Prices & Incomes (adjustment) policy. By increasing the prices it pays at a rate equal to the desired inflation rate, which would not fully cover the increase in costs caused by a supply-side shock, this would quickly shift the Phillips Curve down following its shift up to reflect an increase in inflationary expectations (i.e., a desire for wages and prices to increase at a rate equal to the rise in costs). The policy wouldn’t control all wages and prices (not that it should), but it would certainly better control the calibration standard. The key is to identify what unbought stuff for sale in the currency-issuer’s currency needs to be bought up without pushing spending on these things beyond their supply at the new calibrated prices. Clearly, unbought labour should be top of the list.

   Ongoing food for thought.

4. @ Phil,

   “,…… it could discipline labour (wages) and capital (profits/prices) in such a way as to institute a fairer Prices & Incomes (adjustment) policy”

   Yes, a currency issuing government could but how likely is that both sides will consider it to be fair or even fairer? We had a series of prices and incomes policies in the UK in the 60’s and 70’s. They were opposed by both the political left and the right. From my POV at the time, from the perspective of a young worker, it was nearly all about incomes and hardly anything about prices. Fortunately for me, at the time, unemployment was quite low so it wasn’t too hard to move jobs, or threaten to do that, to get a better pay deal.

   I know MMT is about economics , but politics and economics cannot easily be separated. We need to ask ourselves why the JG hasn’t been supported in the way many of us might have wished for. It’s not just the political right that opposes it. Neither side does, or-at least not one that is MMT compliant. It would mean taking away at least some of the power from the Trades Unions to set the pay rates of the lowest paid workers.

   Arguably the government does that at the moment by setting minimum rates but a JG would be setting a fixed rate. Of course I appreciate that it has to be this way to work as intended economically.

5. Peter Martin: I don’t for a moment believe anything will be done politically to deal with our existential crisis. But I’m not interested in confining what I think and say to what is politically feasible. It’s the restriction to what is politically feasible and what is glaringly inadequate that has got us in the mess we are in and driven support to the extreme right.

   I’m not a politician, legislator, or public servant. I’m an academic doing what I think academics should do, which is more than I can say about a lot of academics. I’ve paid a big price for doing what academics should do in what should be the safest place to be a genuine academic – academia! I made the mistake of stepping out of the system to avoid bullying and intimidation at the university I was employed at and had the door shut in my face by academia. I have no time for what masquerades as academia, which is no repository of truth and knowledge, especially in the social sciences. Despite many academics being well intentioned, people like Bill Mitchell are exceptions in the so called academic world.

6. According to Ian Verrender, ABC, 29/9
   The RBA Has No Choice But To Hike Rates As Us Currency Crown Slips
   because
   “Alarmed by a national debt that has doubled since Trump first took office in 2016 and which has now expanded beyond $US40 trillion ($57 trillion) — along with soaring inflation driven by a Middle East war that is becoming increasingly intractable — investors seeking safety are beginning to look elsewhere.
   Trust in America, the foundation of US economic power, is fraying.
   Money markets are calling the tune, and investors are dictating interest rate policy to those pulling the levers.”

   That last sentence basically translates as letting/permitting capitalists – who earn money not from their labours but from their capacity to ‘invest’ – to work the economy to their own advantage.

   https://www.abc.net.au/news/2026-09-29/us-dollar-trust-weakening-due-to-donald-trump-iran-war/107204644

7. Peter Martin: I also believe that because we have failed to address the impending existential problems that we were aware of decades ago (Carson (1962), Silent Spring; Ehrlich & Ehrlich (1968), The Population Bomb; Club of Rome (1972), The Limits to Growth; Daly (ed) (1973), Toward a Steady-State Economy), the policies needed to resolve them have become increasingly unpalatable. Every day that we fail to make the necessary reforms the more difficult it becomes politically to implement them. It has never been more difficult to govern. It was easier once, which is why the necessary policies and reforms should have been implemented when the opportunity was there – when individual sacrifices would have been small and the long-term benefits enormous. Instead, governments have tinkered around the edges, at best, to maintain electoral support, thus indicating how deficient our political systems and institutions are.

   We have never had good governments. Some are not as bad as others. The reforms required are considered extreme only because of the extent of the personal sacrifices most of us must make to bring about an ecologically sustainable, equitable, and truly efficient socio-economy. As the impending problems of the past become costly problems of the present and governments fail to bite the bullet, if only because it is political suicide to do so, the established political parties lose electoral support and there is a shift to political extremes. In most countries, it has been a political shift to the extreme right rather than the extreme left. I think this is due to the successful propaganda of the right (e.g., the Powell Manifesto in the USA), the failure of Communism, and the neoliberal reforms starting in the 1970s and 1980s, which has created an anti-left sentiment in many societies. A lot of older people also want a return to the days of the past when things seemed ideal. What they don’t realise is that much of what they want a return to were the undesirable aspects of the past (e.g., racism, misogyny, and environmental destruction) and yet shun the desirable aspects of the past (e.g., govt involvement to ensure full employment and to provide a broad range of public goods). They don’t realise how much the ways of the past had to be part of a transition to something sustainable, equitable, and efficient (a post-industrial society) and not something permanent that has largely been the root cause of our existing problems.

   Our biggest failure has been our failure to control population growth. With every additional person on Earth, the required individual sacrifices increase, and the necessary changes become politically more unpalatable. If the global population was the same as it was in 1964 when I was born (3.25 billion), without any change to our lifestyles (e.g., same per person increase in consumption), the global Ecological Footprint (EF) would be below global Biocapacity (BC) (i.e., ecologically sustainable). Only 40% of the current area of land devoted to agriculture would be devoted to agriculture. GHG emissions would be 40% of current levels. I could go on. Having to cap the rate of resource throughput would be easy to implement because it would require no sacrifice other than for some wealthy people due to any need to redistribute the spoils of economic activity to maintain distributional equity. At present, any cap on the global rate of resource throughput to bring EF below BC means having to halve the current rate of throughput (at present, global EF = 1.8 x global BC), which essentially means a massive sacrifice on most people’s part unless population numbers are drastically reduced.

   As I see it, ecological, social, and economic mayhem is just around the corner. The only thing I’m not certain about is which will happen first.

8. Well it didn’t take long to get Iain Ross back on board with the RBA groupthink.

   The unanimous decison to lift rates 25 points today based on zero evidence of wages driving inflation seems to be par for the course these days

9. @ Philip,

   Thank you for your replies. You’ve covered a lot more than I anticipated you would in my original comment. I don’t think there is any alternative but to try to be considerably more optimistic than you seem to be. Otherwise, there’s no point in trying to do anything at all. I’m not ready to accept that the “end is nigh” quite yet.

   I’m certainly grateful to BIll. I learned a lot from struggling through his quiz questions every week. However, this doesn’t mean I agree with him on everything! 🙂

   For example, the JG makes perfect sense economically but we need to address and discuss the political concerns of the working class movement and the trades unions if the concept is to gain any traction. I’m of the opinion that it’s only going to be feasible if (hopefully when) capitalism is eliminated. Maybe I’m wrong to think that. I’m open to alternative arguments.

   I’m also not totally sold on the idea that currency issuing governments set interest rates higher than they need be just to provide corporate welfare. I’d say they do it to protect the exchange rate of the currency. Again, maybe they’re wrong to think that but I can’t see why they would think anything else.

   If the current Labour government were to oversee a serious fall in the UK pound’s value they would be wiped out at the next election. So I’d say their concern is understandable, politically if not economically.

10. @#!* optimism, Peter Martin.

    To quote Pablo Casals “The situation is hopeless; we must take the next step.”. We have two choices: do something or do nothing.

    Hope and optimism are what has got us to where we are today. They are both killers. Give me realism and then action based on realism. It’s up to us as democracy, which we don’t have, is not a spectator sport.

    Bill and Philip can load the bullets then it’s up to all of us who understand not optimism or hope.

11. “There is no wages problem in Australia that is driving the current inflationary pressures.

    The RBA is just making this up.”

    In more recent times Governor Bullock certainly has NOT been saying this and reiterated there is “no wages break-out” at yesterday’s post meeting presser. However, Bullock did make note of higher unit labour costs due to woeful productivity growth. Bullock typically says the labour market is a “bit tight”, and repeated this at the presser.

    I would have voted against yesterday’s rate hike. I also would have voted against the three cuts in 2025, as these were based on highly distorted inflation data reads, ideology and politically preferences. The RBA has a dual mandate and me thinks it has failed both.

12. I’ve been interested to see recent proposals that increasing compulsory superannuation be considered as an alternative to the RBA thick stick of rate rises to curb demand driven inflation. What would this look like viewed with an MMT lens?

13. @ Brett,

    Rather than increase levels of taxation, governments have introduced compulsory savings schemes previously to curb demand. If the money goes directly to government it can be viewed as a kind of deferred taxation. The UK government had one during WW2.

    Money going into a private superannuation fund isn’t quite the same though. It will have some deflationary effect but not as much as if the government ran a superannuation scheme. The superannuation fund may purchase some government bonds but some will be spent on admin costs, some will be used to purchase shares so staying in the economy, and some will be used to purchase land and real estate and so push the price of housing ever more out of the reach of younger people.

    I would say there needs to be more consideration of the same points when it comes to the question of taxing the rich.

14. Let’s be honest;
    The only reason why the RBA hikes rates is to protect bank profits from being eaten away by inflation.

15. @ Mark,

    “ “Let’s be honest; The only reason why the RBA hikes rates is to protect bank profits from being eaten away by inflation.”

    If we were really being honest I think we might allow that the central bank which is really a part of government might have a somewhat less nefarious motive. I would say the RBA, and I lived in Australia for many years, is less concerned with the exchange rate of the Aussie dollar than is the UK government, with the GBP, but it is still a factor. If they let it fall the price of imports, especially oil, will rise and have a knock on effect with most other prices too. This will cause them to have to put up interest rates even more than they would have done had they not let the A$ fall in the first place. The government has lumbered the central bank with the responsibility for keeping prices relatively stable. The monetary tool is the only one in their box.

    Of course they could be wrong in thinking that adjusting interest rates will help keep the Aussie dollar in the range they want it to be. If so we should say so more forcibly.

    Both MMT and the mainstream seem to be in agreement that currencies should float. They do but, in practice, they are ‘managed floats’.

16. Dear Mark Kinnear (at 2026/10/01 at 6:47 pm)

    I actually think the reason the RBA hikes rates in this current environment is that their economists are infested with mainstream New Keynesian thinking where the NAIRU concept is central to their analytical reasoning and they cannot see beyond that ideological lens.

    In other words, they actually believe what they say.

    I can confirm many conversations with these types of economists in policy making circles that confirm that assessment.

    best wishes
    bill
    ps the fact that their decisions protect bank profits from inflation is more the reason why the bank economists who get platforms in the media on a daily basis are always pressuring the RBA to lift rates.

17. Bill’s saying that the RBA economists are infested with NK type thinking and NAIRU concepts which means that they want to push up interest rates to increase unemployment as so reduce the rate of inflation. Also that they do genuinely believe in what they are saying. I’d go along with that. I’d also go along with Bill’s point that some economists who are in the employ of the commercial banks may have additional and more pecuniary motives.

    Incidentally I’d add another U to the NAIRU to include underemployment as well as unemployment. I’d also add most politicians who might not like to use the term NAIRU in public but maybe they do when they are chatting with RBA economists.

    The question is how wrong are they all? We’d probably all agree that they were morally wrong to try to use unemployment as a weapon of class control but that’s the way capitalism works. And it does work – in the interests of capital. Workers are less likely to strike for better pay and conditions, and be generally more compliable if there’s a real danger they will lose their jobs. So maybe they aren’t as wrong as we sometimes claim.

    The use of higher exchange rates is another way of disciplining the working class. I used to work in the electronics industry in the telecommunications sector. It was fine at first but over the years it became increasing difficult to secure work against foreign competition. The tech boom, or dot-com bubble, of the late 90s reversed that for a while but when the “tech wreck” hit in the early 21st century it was pretty severe. The company I worked for in both Australia and the UK shifted its telecomms activity to China. It kept the military side for a while but later sold out to US ownership. The companies that survive in both the UK and Australia, largely only do so because of defence contracts which aren’t open to Chinese and other foreign competition.

    I’m not saying the exchange rate is the only factor but it is a big factor in the de-industrialisation of both the UK and Australia. The car industry hangs on under foreign control in the UK but it has just about gone in Australia.