You could be forgiven for thinking that the only thing that matters to Australian economic growth is unemployment, inflation, wage growth and the price of a liter of bread (credit crazy as hell) is what the Reserve Bank Board of Directors eats for lunch on the first Tuesday of the month.
Unlike the focus on what the RBA might do next (raise the exchange rate a bit) and when (sometimes), monetary policy doesn’t have the biggest influence on output and living standards – it’s fiscal policy, what the federal government does, that matters more.
And it’s not just a matter of monetary and fiscal policies that determine our performance either – population policy is also in the mix, but that may be a bit too sensitive to receive the attention it deserves.
One of the main lessons of the last decade has been the demonstration of how much more the economy gets for its money than the movement of monetary interest rates – or how weak monetary policy alone is to stimulate growth.
The RBA began a decade of ever-increasing monetary stimulus in November 2011 when it cut the exchange rate from 4.75 to 4.5%.
It wasn’t really until the federal government kicked off its shift to mega-fiscal stimulus with COVID that monetary policy could claim to do much.
Until then, for all the years the RBA was begging the federal government to do more to revive our lackluster economy, monetary policy was pushing on the proverbial piece of string.
Cheap money alone could not boost business investment, reduce unemployment or accelerate wage growth.
Similarly, when fiscal and monetary policies pushed in the same direction during the GFC, the stimulus worked. When they go in opposite directions, money comes second.
The big challenge for the Morrison government next month is to find the ticker and the inspiration for fiscal policy that will deliver sustainable economic growth – not just billions of sugar pals and a tax-driven investment push.
The omens are ominous with just under seven weeks to Josh Frydenberg’s election budget. Indeed, chook’s innards are everywhere.
The Morrison/Frydenberg MO is to blow billions by buying votes with bad investments – the “carpork” comes to mind, not to mention the corruption of community development grants.
But at the same time, the Coalition’s rhetoric boils down to “where does the money come from? by attacking the Labor Party and talking about drawing a line under spending.
And there is the miserable reality of a Prime Minister declaring that he is not interested in “building back better” or leaving a legacy. Well, a positive legacy, anyway.
The outlook is for the government to tighten fiscal policy – except for targeted policy purposes – while the RBA begins to raise interest rates.
It looks like our economy and inflation are growing enough to justify ending crisis-level interest rates that we are enjoying.
The psychological impact of rate hikes and the heavily biased nature of some households should mean rates won’t have to rise much to achieve traction.
But if the federal government simultaneously removes its sugar-laden punch bowl without investing in the economy, it will set us up for a tough 2023 when our “surplus” savings begin to deplete and the “wealth effect” of soaring real estate prices will transform. negative.
It remains a curious thing that so many diverse voices seem to blame the RBA for our economic underperformance over the past decade.
Wednesday, Crikey’s Glenn Dyer and Bernard Keane examined the odd coalition calling for an overhaul of the RBA.
I was making a similar point here in April with the idea that the chorus wanting to blame the RBA was a big deviation from the real game.
And this deviation continued.
This month kicked off with Future Fund and Nine Entertainment Chairman Peter Costello joining the RBA review chorus.
Seems a bit rich to me given the questionable governance of the Future Fund.
The appointment of Mr Costello to the board in 2009 by Penny Wong arguably failed the ASX guidelines for independent directors.
Given that Mr. Costello started the fund as treasurer, it can’t be said that he didn’t have a “material relationship” with the fund for at least three years, in addition to having had his say. to say about the members of the board of directors.
(2009 was when a Labor government tried to be non-partisan in its appointments – a policy that was dramatically torn apart by the Coalition, swiftly misleading Labor appointees, regardless of ability, before the wholesale stacking of various government bodies with the politically connected.)
There is also a question of Mr. Costello’s longevity.
The guidelines of the Australian Institute of Company Directors state that “it is good that a director’s term of office should be limited to encourage renewal”.
By the time Mr. Costello completes his second five-year term as chairman, he will have served on the board for 15 years.
And another Future Fund governance issue is that prominent Liberal Party donor John Poynton will remain on the board after having to resign from Crown Resorts due to a “perceived lack of independence”.
But there is no doubt that the usual problem of questionable ethics, money laundering and shady customers in Australian casinos is also the fault of the RBA.
The reality of the RBA commentary focus is that it’s easy and everyone does it.
Everyone with a mortgage is quickly baited by a “rate hike!” big title.
Anyone worried about asset price inflation (i.e. the house price bubble) wants to see a change.
Anyone who wants to distract from the government’s economic failure is happy to push the wheelbarrow.
After all, there is an unsubstantiated claim that the Liberal Party is a “best at managing the economy” to bolster.
Anything less than good must be someone else’s fault.
