Treasurer-central bank stoush – a case of the pot calling the kettle black

The Reserve Bank of Australia has certainly attracted headlines this last week or so starting with the claim by the Federal Treasurer that the monetary policy stance is “smashing the economy” (Source), while a past Labor Treasurer and now Labour Party National President (Wayne Swan) was much more openly critical of the RBA conduct over the last few years. Things then came to a point when the new RBA governor gave a speech the day (September 5, 2024), the day after the National Accounts came out with the news that the GDP growth rate had slumped to 0.2 per cent for the June-quarter (well below trend), and told her audience (a Foundation that “supports research into adolescent depression and suicide”) that around 5 per cent of mortgage holders were falling behind payments and many would “ultimately make the difficult decision to sell their homes” (Source) as they would be forced into default. Meanwhile, the conservatives (and economists) have claimed the Government is impugning the ‘independence’ of the RBA. It is a case of – The pot calling the kettle black – and demonstrates how ridiculous the policy debate has become in this latter years of the neoliberal era.

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Delinking and degrowth

One of the issues that some on the Left raise when the topic ‘degrowth’ enters the conversation relates to the sense of elitism from the wealthy nations, which can now indulge in a bit of non-material aspiration amidst the large houses, two-or-three car garages, speed boats, lycra-clad journeys to coffee shops on $10,000 bicycles designed for racing but ridden around the corner … you get the message. The criticism is that such a bourgeois ‘movement’ has no correspondence with the needs and aspirations of citizens living in poorer nations with fundamental development challenges, not the least being food security and poverty. They thus reject the idea as another ‘woke’ issue. There is some truth in what they say but it is an inadequate stance given that the global economy is operating 1.7 times over regenerative capacity and urgent changes are required. That means we have to deal with the notion of dependency between ‘North’ and ‘South’, which takes us back to the colonial relations and beyond, as an integral part of the degrowth agenda. This is where the concept of ‘delinking’ comes in. Here are some preliminary notes on all that, which arise from research I am doing for my next book on these issues (probably coming out first quarter 2025).

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Australian National Accounts – 3 months ago the economy was barely moving – it will be worse now

Today (September 4, 2024), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, June 2024 – which shows that the Australian economy grew by just 0.2 per cent in the June-quarter 2024 and by just 1 per cent over the 12 months (down from 1.5 per cent). If we extend the June-quarter result out over the year then GDP will grow by 0.8 per cent, well below the rate required to keep unemployment from rising. GDP per capita fell for the sixth consecutive quarter and was 1.5 per cent down over the year. This is a rough measure of how far material living standards have declined but if we factor the unequal distribution of income, which is getting worse, then the last 12 months have been very harsh for the bottom end of the distribution. Household consumption expenditure contracted by 0.2 per cent – a sign that the economy is heading into recession. There is now a very real possibility that Australia will enter recession in the coming year unless there is a change of policy direction. Both fiscal and monetary policy are squeezing household expenditure and the contribution of direct government spending, while positive, will not be sufficient to fill the expanding non-government spending gap. At the current growth rate, unemployment will rise. And that will be a deliberate act from our policy makers.

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Some debriefing on continuous fiscal deficits and debt issuance

A government cannot run continuous fiscal deficits! Yes it can. How? You need to understand what a deficit is and how it arises to answer that. But isn’t a fiscal surplus the norm that governments should aspire to? Why frame the question that way? Why not inquire into and understand that it is all about context? What do you mean, context? The situation is obvious, if it runs deficits it has to fund itself with debt, and that becomes dangerous, doesn’t it? It doesn’t ‘fund’ itself with debt and to think that means you don’t understand elemental characteristics of the currency that the governments issues as a monopoly. These claims about continuous deficits and debt financing are made regularly at various levels in society – at the family dinner table, during elections, in the media, and almost everywhere else where we discuss governments. Perhaps they are not articulated with finesse but they are constantly being rehearsed and the responses I provided above to them are mostly not understood and that means policy choices are distorted and often the worst policy decisions are taken. So, while I have written extensively about these matters in the past, I think it is time for a refresh – and the motivation was a conversation I had yesterday about another conversation that I don’t care to disclose. But it told me that there is still a lot of work to be done to even get MMT onto the starting line.

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Australian inflation rate falling rapidly

Today (August 28, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for July 2024, which showed that the annual inflation rate has fallen from 3.8 per cent in June to 3.5 per cent in July, a significant decline which continues the downward trend. That trend has been interrupted over the last few years by transitory factors like weather events but it is clear there is not an excessive spending situation present in the Australian economy, which should end all talk of even more aggressive monetary policy (within the mainstream logic). The monthly inflation rate was zero in July even if we look at the All Groups CPI excluding volatile items (which are items that fluctuate up and down regularly due to natural disasters, sudden events like OPEC price hikes, etc). The general conclusion is that the global factors that drove the inflationary pressures are resolving and that the outlook for inflation is for continued decline. There is also evidence that the RBA has caused some of the persistence in the inflation rate through the impact of the interest rate hikes on business costs and rental accommodation.

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British GDP growth depends on the current fiscal position – a fact that is being forgotten

It seems that since they were elected British Labour, principally the Leader and Chancellor, have thought it necessary to put out ever increasing messages of doom and the need for tough fiscal action – aka austerity – despite them claiming when they were wooing the electorate that they would not pursue that ‘Tory’ option. Of course, they pulled the old stunt that once they were in office and had access to the ‘books’ they discovered, surprise surprise, that the state of government finances were even worse than they had imagined and that meant it was all to play for, which justified them taking tougher than planned actions. Every week passes since, it seems, when the tough talk gets tougher and core promises are abandoned. Tory policies that are the anathema of a progressive policy stance – such as the two-child benefit cap – will remain. And other Tory policies that were more ‘Labour like’ in nature will go – such as the Winter Fuel Payment received subsidy – will be severely cut back. There are many criticisms that I have made of the Chancellor’s stance (see previous blog posts) based on the absurdity of constructing the British government’s finances as equivalent in principle to the finances of a household issue. But, in addition to those more elemental issues, there is another matter that I have not seen addressed by the mainstream media nor the actual politicians relating to the proposed austerity. The whole discussion appears to be waged in a vacuum – context free. It is as if the current policy position, which the Chancellor claims is shocking and unsustainable, is divorced from the current broader economic reality in Britain. And that construction means that poor policy decisions will be made that will damage the material prosperity of the nation.

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