Changes to RBA Act will further entrench the depoliticisation of economic policy and reduce democratic accountability

Today, I consider the latest development in the entrenchment of neoliberalism in the Australian policy sector, specifically, the latest decision by the Treasurer to excise his powers under Section 11 of the Reserve Bank Act 1959, which allowed the Treasurer to overrule RBA policy decisions if they considered them not to be in the national interest. This power was considered an essential aspect of a working democracy, where the elected member of parliament had responsibility for economic policy decisions that impacted on millions of people. The latest evolution will further see macroeconomic policy depoliticised and placed in the hands of a small cabal of mainstream economists who regularly advocate policies that serve special corporate interests and leave millions unemployed. I also provide a video from a TV show I appeared on in Tokyo the other day. Then some lovely guitar music. It’s Wednesday after all!

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UK Autumn Statement is appalling and ties the hands of Labour – the voters face a Hobson’s choice

Last Wednesday (November 22, 2023), the Tory government in Britain released their fiscal update known as the – Autumn Statement 2023 – which basically sets the course of fiscal policy in the UK for the period ahead. The Tories continue their appalling record. But they have also locked Labor into an austerity mindset. Meanwhile, neither party resonates with the sentiments expressed by the people if the latest Ipsos survey is representative of that sentiment. The British people face a Hobson’s choice!

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Electricity network companies profit gouging because government regulatory oversight has failed

It’s Wednesday, and today I discuss a recently published analysis that has found that Australian privatised electricity network companies are recording massive supernormal profits because the government has been to slack in its regulatory oversight. Electricity prices have been a major driver of the current inflationary episode and we now have analysis that shows where the problem lies. The preferred solution is for governments to renationalise the industry, but in lieu of that, they should at least force the companies to obey the relevant laws. And we then can listen to a soundtrack I heard while watching a movie between Tokyo and Sydney on Monday.

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Kyoto Report 2023 – 9

This is my last Report from Kyoto for 2023. I will be returning to my work there in 2024 and there are still lots of things to report on. I seem to discover more as I learn more, which is always a good thing. Anyway, our bikes are back in storage, our cases packed and by the time this comes out I will be back down South with mixed feelings about that. Life goes on though. Stay tuned for the Kyoto Report 2024 series – starting sometime next year.

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Fiscal austerity does not on average reduce public debt ratios

The resurgence of economic orthodoxy is a great example of how declining schools of thought can maintain dominance in the narrative for extended periods of time if the vested interests are powerful enough. In the case of the economics profession, mainstream New Keynesian theory persists because it serves the interests of capital. Recently, the IMF urged the Australian government to engage in ‘fiscal consolidation’ in order to support further interest rate hikes by the RBA aimed at reducing inflation quickly. In general, the IMF is urging nations to engage in fiscal austerity in order to bring their public debt ratios down. The problem is that even their own research shows that these fiscal adjustments on average do not succeed. And, usually, they leave a damaged society where the lower income and disadvantaged cohorts are forced to endure the bulk of the negative effects.

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The Bank of Japan is light years ahead in sophistication relative to the West

Given yesterday’s detailed monetary policy analysis, I am using today to present an array of news items and some brief analytical thoughts on central bank monetary policy. The latter is based on a very interesting speech that the governor of the Bank of Japan gave in Nagoya earlier this week. The juxtaposition with the way the Western central banks are behaving at present is stunning. There is also some self promotion and some announcements. Then we get to listen to Ron Carter. A good day really.

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RBA monetary policy decision represents a terminally broken policy model in Australia

Yesterday (November 7, 2023), the Reserve Bank of Australia raised its policy rate target for the 12th time since May 2022 by 0.25 points to 4.35 per cent. It was an unnecessary increase, just like the eleven increases that preceded it. And, from my perspective it represents a broken policy model. The RBA policies are transferring income and wealth from poor to rich at rates not seen before in this country. They are pretending that the inflationary episode is demand-driven (excessive spending) whereas the data shows that it remains a supply-side phenomenon and the major drivers will not fall as a result of interest rate increases. In fact, one of the major drivers – rents – are rising because of the interest rate rises – RBA is thus causing inflation. The RBA is systematically wiping out wealth at the bottom end and transferring to the top end. The cheer squad for these rate hikes are the wealthy shareholders of the major banks who are recording record profits. A broken model indeed.

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US labour market slower but relative to what?

In last month’s US labour market briefing – US labour market – stability abounds although, worryingly, real wage gains have evaporated (October 9, 2023) – I noted that while there was no major slowdown signalled, the real wage gains made in previous months had evaporated. I wasn’t sure whether that was a sign that a tipping point had been reached or was near. Last Friday (November 3, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – October 2023 – which showed payroll employment rising by just 150,000, a significant dip in the previous month’s increase. The unemployment rate also continued to creep up to 3.9 per cent (from 3.8 per cent). While some might interpret this as a weakening trend, the question should be asked about the appropriate benchmark that we should be using. One could easily conclude that the aggregates are returning to pre-pandemic levels after all the pandemic noise. The alternative view is that there is a slowdown occurring. We will have to wait another month or so to distinguish between these two conjectures. After a few months of real wage gains, we are now observing nominal wages growth trailing the moderating inflation rate.

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Latest IMF report on Australia is food for uncritical and lazy journalists but garbage nonetheless

The IMF regularly conduct ‘missions’ to member countries, where a group of highly paid economists trot out to a capital city somewhere, hole up in some luxury hotel, and have a few meetings with Treasury officials and the like and then shoot through after the short visit back to whence they came and produce their report. On October 31, 2023, the IMF published – Australia: Staff Concluding Statement of the 2023 Article IV Mission – which attracted a lot of mainstream press attention in Australia. The message that the public received was summarised in this article – International Monetary Fund says Australia needs higher interest rates. The article carried no qualifications or reflection on the methodology. The journalists who have a high profile in the mainstream national media sanctioned without question the IMFs conclusions. That is what goes for information in these times. It is an assault on our collective intelligence really.

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Bank of Japan shifts ground – just a little but there is no sign of a major adjustment any time soon

It’s Wednesday and I use this space to write about any number of issues or items that have attracted my interest and which I consider do not require a detailed analysis. The issues discussed may be totally unrelated. Today, I provide my response to yesterday’s decision by the Bank of Japan to vary its Yield Curve Control (YCC) policy, which some commentators are frothing about. The change was very minor and is not a sign that the expansionary position of the Bank is shifting significantly. I also discuss the culture of denial in the US State Department and then rock out to come classic swamp.

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US national accounts data – no sign that interest rates are working the way economists think they work

On October 26, 2023, the US Bureau of Economic Analysis published the latest US National Accounts figures – Gross Domestic Product, Third Quarter 2023 (Advance Estimate) – which showed that “Real gross domestic product (GDP) increased at an annual rate of 4.9 percent in the third quarter of 2023”. The June-quarter 2023 growth rate was 2.1 per cent. There was broad-based growth in all the expenditure components, including those that would be most sensitive to interest rate rises. My prior, of course, is that the interest rates would not significantly reduce growth in the short run, whereas mainstream New Keynesian theory considers interest rate rises to be an effective tool in moderating total spending, and, in turn, reducing inflation. The reality does not support the mainstream proposition. Consecutive national accounts releases from the US, however, have shown that aggregate expenditure is resilient in the face of the interest rate increases.

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US labour market – stability abounds although, worryingly, real wage gains have evaporated

Last Friday (October 6, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – September 2023 – which showed payroll employment rising by 336,000 and the unemployment rate stable, after rising 0.3 points to 3.8 per cent in August. I posed the question last month when employment growth had slowed considerably and unemployment had started to rise whether this marked a tipping point. My answer, given the extra data that resolved some of the uncertainty about last month’s data, is that I don’t think it did. In September 2023, the data suggested a very steady labour market – employment growth above the average of the last 9 months but just enough to keep pace with the labour force growth. Participation was constant as was the employent-population ratio. All signs of stability. The disturbing fact though, was the renewed failure of nominal wages growth to transalate into real wage gains for workers. The relatively modest real wage gains over the last few months as the inflation rate has declined evaporated. The question that mainstream economists need to answer is how come the significant interest rate rises have not seriously impacted the labour market performance? I know why. But their textbooks do not!

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How interest rate rises undermine our climate adaption

It’s Wednesday and I have a few observations on a few things today. I have written before about how the rising interest rates in many nations, far from being deflationary, have demonstrably increased inflationary pressures. The two pathways that this impact occurs are: one, the boost to wealth among creditors coupled with significant proportions of fixed-rate mortgages provide the equivalent of a fiscal boost, and, two, the direct impact on costs to firms via their overdrafts and on landlords. The former just pass the unit cost rise on to consumers, while the latter increase rents, which feed into the CPI. But I have also been tracing another negative outcome from the interest rate hikes – the impact on investment in renewables. Here are some notes on that followed by some music with a renewable energy theme.

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Be careful using first release data – Britain now surges ahead of Europe!

In May 2023, when the British Office of National Statistics (ONS) released the March-quarter national accounts data (first estimate), which showed that real GDP grew by only 0.1 per cent in the first quarter and a rate equal to the December-quarter 2022, the critics were out in force. Brexit this. Brexit that. Graphs were created showing that Britain was recording the worst growth across the G7 nations. Brexit this. Brexit that. The Labour Party was cock-a-hoop as they continued the purge of the progressive elements in the Party. Then the second estimate came out on June 30, 2023 using additional data which the ONS said provides ‘a more precise indication of economic growth than the first estimate’, we learned that GDP “increased by an unrevised 0.1% in Quarter 1”. Brexit this. Brexit that. William Keegan who is like a cracked record stuck in a rut, wrote more UK Guardian articles bemoaning the democratic choice to leave the European Union. The problem is that all this data-centric inference was based on an illusion, which is why one must always be circumspect when dealing with this sort of data. The latest national accounts data released by the ONS on Friday (September 29, 2023) revised the first quarter result – scaling it up by a factor of three – to 0.3 per cent, which is still slow but hardly the disaster the pundits claimed.

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US wealth distribution – fiscal policy increases private net worth but the poor miss out

I read an interesting report this morning, which resonated with some other work I had been looking into earlier in the week. The Australian Council of Social Services (ACOSS) released a report yesterday (September 27, 2023) – Inequality in Australia 2023: Overview – which shows that “The gap between those with the most and those with the least has blown out over the past two decades, with the average wealth of the highest 20% growing at four times the rate of the lowest”. It is one of the manifestations of the neoliberal era and is ultimately unsustainable. Earlier in the week, I spent some time analysing the latest data from the US Federal Reserve on the distribution of wealth among US households. The US data goes a long way to explaining why the recent interest rate hikes have been inflationary in themselves.

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Former British Prime Minister still missing the point – this time on ODA

I read an article in the Financial Times earlier this week (September 23, 2023) – How do we raise trillions of dollars to fight the climate crisis? The answer is staring us in the face – which was written by former British Prime Minister and Chancellor Gordon Brown. The article is really just a promotion for a soon to be released book he has co-authored with characters from financial markets and mainstream economics. While purporting to be a solution to the climate challenges facing the world, it falls into the ‘progressive’ mainstream trap of coming up with just another ‘tax the rich’ plan.

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Australia’s new White Paper on Full Employment is a dud and just reinforces the failed NAIRU cult

Today (September 25, 2023), the Australian government issued its – Working Future: The Australian Government’s White Paper on Jobs and Opportunities – statement, which portends to define labour market vision and policy for the years to come. White Paper’s are grand statement and this one falls short of that requirement. Compared to the path-breaking – The 1945 White Paper on Full Employment – which set the path for several decades of prosperity for workers, the current effort by the government is a mediocre affair. It is just a restatement of the NAIRU cult that has justified the so-called ‘activation’ or supply-side approach to labour market policy, which effectively relegates macroeconomic policy to the bench and considers micro policies are required to reduce the NAIRU and the measured unemployment rate. This is the failed strategy that has dominated for the last three decades and has cause the problems that the White Paper claims it wants to address. Its release today demonstrates that the Labor Government is really just a neoliberal-lite outfit – full of spin but short on any directional shift in policy. It is very dispiriting.

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