Posted: February 10, 2005

Unemployment and spending

Well now, the CEO of Commonwealth Bank, yesterday joined the list of economists who do not think real wages increases cause unemployment and firmly sees unemployment as being an inverse function of spending. The Post-Keynesian position nonetheless. He was speaking on the ABC radio current affairs program PM last night and he was commenting on the reports that the Reserve Bank was hinting at increasing the cash rate because of some spurious fears of an inflation outbreak, even though all the 'real' economic indicators (that is, indicators about real rather than nominal things) were pointing to a slowdown.

He claimed the economy was still travelling well and while bottlenecks might emerge the global outlook was not clear and that the RBA will have to balance those factors. I add that the former 'peoples' bank' now gorges itself on huge profits - with a 50 per cent rise in half-year earnings (to around $2 billion) announced yesterday.

But the relevant comments from the bank CEO were these "We said we expect the economy to continue to perform well in 2005, and the reason for that is that all the indicators are still positive. Unemployment is still falling. Real wages are still rising. And for these reasons, with low inflation and low interest rates, consumer confidence is very high. So the trend in the economy is very good." (full Transcript).

Blog entry posted by bill