As COVID-19 continues to wreak havoc across the western world, the toll it has also exacted on neoliberal policymaking is growing by the day.
With fiscal policy now devoted to a colossal expansion in the size of government and a trillion dollar debt by the political party that once whined about deficits a fraction the size, the obsession with fiscal discipline and smaller government that is a core part of neoliberal orthodoxy has been put to flight in Australia. Only the vaguest of promises that normal fiscal service will be resumed when unemployment falls below 6% remain.
This week it was the turn of monetary policy, with Reserve Bank (RBA) governor Philip Lowe announcing a significant shift in the bank’s inflation targeting to abandon inflationary forecasts and expectations and instead base policy on actual inflation outcomes.
It also toughened its language on employment, declaring jobs an “important national priority”, and flagging that it doesn’t believe it will be able to reach its inflation target — 2-3% — without “a return to a tight labour market”.
This is significant in two ways.
It recognises that the RBA got it wrong for years on inflation.
From 2016 to now, inflation has only broken an annual rate of 2% in three quarters. Two of them were annual outcomes of 2.1%. But throughout that time the RBA consistently forecast inflation to rise by more than 2%, and based its policy stance on that expected outcome. It left rates at 1.5% that whole time while we struggled, and failed, to get unemployment down below 5%.
The second way is more historic.
Inflation is the holy grail of central banking under contemporary neoliberal policymaking: independent central banks must be allowed a free monetary hand to make sure inflation is kept tightly in check, even at the cost of jobs.
This obsession with inflation was always advertised by neoliberals as crucial to ensuring stability and growth, but it also conveniently served to protect the interests of business by keeping unemployment higher than it otherwise would be.
In time, however, it morphed into something more: loose monetary policy came to be regarded as lax and immoral, policy that pandered to the popular interest in high employment, rather than the important goal of halting inflation.
The RBA’s new stance shifts weight from inflation to unemployment. Inflation is no longer such a potent threat that the mere expectation that it will increase is a trigger for a rate hike. Inflation will have to rise, and stay higher, to trigger a change in rates. And the bank wants a tight labour market to bring it about, not just falling unemployment.
The RBA isn’t the only central bank shifting. In August, the US Federal Reserve abandoned its strict inflation target in favour of a more flexible 2% target, similar to that of the RBA.
It’s now forgotten that while the RBA sat tight from 2016 to 2019, it was criticised for not increasing rates by The Australian Financial Review and favoured AFR commentators like Warwick McKibbin and Warren Hogan.
At one stage, Hogan called for rate rises even at the cost of employment. It wasn’t good enough for neoliberals that the RBA wasn’t cutting rates because its erroneous inflation forecasts suggested a return to inflation within the target band — it should be increasing rates even if inflation was going to return to the target band. If necessary, the inflation band should be changed to 1% in order to push interest rates up.
That’s how obsessed neoliberals have been with inflation targeting. Inflation became an end in itself, the be-all and end-all of monetary policy regardless of the impacts on the lives of real people.
The new RBA stance will likely see a lot of economists, especially those high profile ones in the markets, without very much to do, especially for the next three years given the RBA has persistently ruled out rate rises in that time.
Instead of grabbing easy headlines with predictions of interest rate moves, economists will have to lift their game trying to explain what is actually happening in the wider economy.
Some are better placed for this than others: the National Australian Bank does a very good job with its monthly business conditions and confidence survey and accompanying analysis. AMP’s Shane Oliver and his small team turn out good analysis of statistics and their potential explanation of what is happening in the economy and their impact on the sharemarket in particular.
One indicator that may receive more attention now is the Beveridge, or UV, curve, which plots the relationship between unemployment and the job vacancy rate — in short, how many unemployed people there are available for each vacant job.
It is already in extensive use in central bank studies of labour force equilibrium, using ideas like frictional unemployment, skills mismatches and movements in the participation rate. It may well probably replace the enigmatic NAIRU (non-accelerating inflation rate of unemployment), which powerfully symbolises the subordination of employment to inflation, as the market’s fixation in coming years
The curve is named after William Beveridge, the UK progressive economist responsible for the World War II paper that laid the foundations for the British welfare state. Neoliberals will be mortified. But 2020 has been the year from hell for them too.
Governments, the RBA and Treasury may be finally working out that neoliberal economics was nothing but a self-serving policy of the rich oligarchs who own the country to increase their wealth at the expense of the ordinary person.
The RBA et al, may be able to ameliorate the wort excesses of this unfettered capitalism that has plagued the working and middle classes of Australia for the last forty years, but there is one thing left to do which will be far more difficult.
They need to buy back the farm from the egregious rent-seekers who now own our critical infrastructure and services the ones who make a guaranteed profit from these natural monopolies. Including:
The first four of these are obvious.
As an example of the last; councils don’t have building surveyors, they are all privatised.
Swimming pool safety fences now have to be audited by a registered building surveyor every four years.
For what is a simple “tick-the-box” swimming pool fence safety audit they charge $300 plus $30 GST. With about 220,000 pools and spas that now have to be inspected every four years that amounts to a windfall revenue stream for these monopolists: $22 million per annum plus $2.2 million GST per annum for the government. This assumes that on average they will find a problem at each inspection and charge another $100 + GST for the follow-up visit. Of course there is a $30 fee to register the audit with the council once it is complete. This bring the total costs to more than $25.9 million per annum.
These registered building surveyors have their own union, the Victorian Municipal Building Surveyors Group. This group lobbied the Victorian Government along with various other commercial groups for these audits. A secondary school kid with a drivers license and one weeks training could do these pool safety audits. If employed directly by the council the total cost would be around $130 and no GST. Total cost per annum of $7.2 Million per annum or about a third of what it will cost under the privatised regime.
After ten years of lobbying by these rent-seekers for pool and spa safety audits the government caved in and brought in these regulations.
There was absolutely no public consultation with pool/spa owners, the regulatory impact statement did not include audit costs and council registration fees and some councils didn’t notify pool owners of the requirement. I found out less than a month before the registration component was due by word of mouth from a neighbor. Failure to register incurs an on-the-spot fine of $300.
About two kids aged 0 to 4 drown in pools and spas each year as a consequence of inadequate pool safety fences and another two end up with a permanent disability. So all up the cost per kid is $6.5 million per annum. And this assumes that the audits are 100% effective. That’s a very expensive insurance policy.
The whole thing is a one size fits all belt and braces approach that doesn’t look at the risk for each pool, the likelihood that a child will encounter the pool or any other factors. In at least half the cases of drowning from 2000 to 2017 supervision of the child by the care-giver was found to be grossly negligent.
My property has a rural dam on it for fire fighting and vegetable growing, but that doesn’t have any mandatory safety fence requirements, although I do have a barbed wire fence around it.
This is just a small example of the hidden costs of privatisation that are constantly being ramped up because it costs government nothing to impose these regulations, they don’t have to be voted on in parliament and it makes money for them through the GST.
And why do they have to keep trying to extract more revenue out of the egregious flat tax, because they don’t want to increase tax on the rich because the media would crucify them.
I agree wholeheartedly that the fifth sector, the privatisation of government services, built upon insidious and inherently corrupt policies, is by far the most detrimental to our society. You have clearly outlined the obvious rort pool fencing regulation has now become, just one of many newly constructed scams that have slid into existence in the past decade or so. The job network provider and labour hire criminal organisations(IMHO) are another area needing investigation and exposure. Prisons. Aged care. Centrelink. Local government. All paying through the nose for services, “consulting” etc that, until recently, were simply a part of the enterprise. We are being scammed.
We’re a fkn quarry surrounded by an oil slick.. can we please have another go at a resource tax..starting with a proper inventory.. if we cant make 30% leave it in the ground.. subsidise prospectors not multi nationals..
“Neoliberals will be mortified”… but they can still rely on the powerful illusion that money itself is wealth, rather than merely a measure of wealth ie real goods and services.
Therefore they erroneously think any money creation by the sovereign, currency-issuing state will cause inflation.
Which enables Lowe and Dobelle to laugh all the way to the bank…and take the rest of us to the cleaners…
Who would have ever thought that hyena that is the Liberal National Parties Coalition would adopt the guise of Socialism?
What’s happened to far right wing politics? Is it finally morphing into fascism?
The great god Nairu is a capricious and uncaring one, demanding unquestioning faith and disregard for evidence or reality. How many millions of productive hours of willing workers are wasted every day in the service of the terrible Nairu?
If we can see this farcical object of faith toppled and consigned to the dustbin of history where it belongs, then that will be a very good thing.
The NAIRU is a complete construct, a mythical figure that the economic elite have foisted upon us. It is complete bolllocks. Nobody know where it is, or what it does, but it is a complete capitalist neoliberal orthodoxy piece of classical pestidigitation. Look past this and you realise the classical economics is bereft.
It has ZERO underlying empirical evidence, completely made up by a bunch of boffins.
“lnflation is the holy grail of central banking under contemporary neoliberal policymaking“
And it shouldn’t be. Extremely low unemployment should be their remit. Fail. Wage rises come with low unemployment, and that is the last thing this neoliberal government wants.