Jawboning is the new black

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Regular readers will know that I have little time for the complaints of vested interests. But, one can’t help noticing just how many are out there talking down their circumstances just now.

Don’t get me wrong, MacroBusiness has led the nation’s understanding of the economies’ current travails, and there are losers, contrary to the post-GFC drivel pumped out far and wide by the MSM.

The big shift that’s underway, of course, is the change in Australia’s growth model, from borrow and consume to mining investment and income flows. That means that most of the services economy is weak and non-resource exports in for the chop.

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I have two lines of thought on this circumstance. The first is that we are VERY lucky. Most Western nations are painfully grinding through a post-bubble adjustment. Their assets are deflating, their banks paralysed by bad debts and governments encumbered by debt from having saved the banks.

But for the grace of China, there goes us. But with the high income flows from the resources boom, we have the chance to grow into our asset prices without so much pain.

So, my first line of thought is thank God for China. But that gratitude is coloured significantly by my second line of thought, which is that we’re hitching the wagon to a single horse. When it grows tired, as all horses do, we will still have to face the post-bubble pain, only this time without any alternative income flows from other export sectors.

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It didn’t need to be this way. We could be managing it better, most especially at the fiscal level, where higher resource taxes could be siphoned into an SWF that would have cushioned the blow when commodity prices bust.

But, we didn’t go that way because the Henry Review and the Rudd government didn’t offer it to us. There was another reason, though, too, and that was the outrageously successful jawboning of the anti-RSPT mining campaign.

What is jawboning? It’s to exert moral suasion over a polity. To persuade the public of something, rather than force them into it. During the RSPT, the miners succeeded in persuading enough Australians (or persuaded the government that enough Australians believed them) that the proposed RSPT was such a bad idea no alternative discussion was even possible.

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A more contemporary example is the RBA and its consistent hawkishness for 18 months, which has left Australians feeling like they face a rate hike every weekend. They have done it well.

But now, the RBA faces a new challenge. That is, counter-jawboning. Vested interests across the spectrum are fighting back in the public discussion. Desperately communicating their weakness to our monetary overlords. Yesterday we had Mark Bouris’ horrible cry for help, last week it was Colin Barnett directly contradicting the RBA’s declaration that we need no more debt, by attempting to bully first home buyers back into the housing market. And today, it’s official, organised by The Australian newspaper, a gaggle of service titans has declared the RBA and government must stop. Kerry Stokes led the tirade:

There’s no question we’re in a two-speed economy. There’s no question that outside of major (mining) activities and infrastructure activities our economy is not very well at all,” he said.

“Retailers, people who are involved in all sorts of activities, are finding it really tough.

“In fact, it has got all the feelings of a major downturn in the economy.”

Mr Stokes criticised the RBA for warning recently that two interest rate rises could be needed to cool the economy’s growth and manage the rising inflation rate.

“The trouble I have is trying to come to grips with a budget figure which tells me there’s 4 per cent growth and we’re going to hold the inflation target to within 2.75 per cent, which is within the bandwidth that the RBA has set for what it regards as acceptable,” he said. “If that’s the case, why would it seem necessary to tell the marketplace there’s likely to be two interest rate rises this year?

“Unless it was concerned about what it thought was going to be a breakout in wages above the inflation band or an increase in the availability of labour, it wanted to stop activity everywhere but in the mining companies.”

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Then it was over to:

Westpac chief executive Gail Kelly told the forum she believed the RBA was deliberately trying to cool the Australian housing market. However, she said that consumers could only cope with one interest rate rise this year.

The financial markets predict rates will be raised in June or July. The RBA minutes from this month’s meeting, due to be published today, are expected to give the markets guidance on the timing of the next move.

“I think the RBA has done a really careful job over the whole course of the crisis and now they’re clearly wanting to keep housing prices going nowhere,” Mrs Kelly said.

“They want to make sure that consumers remain cautious, they want to make sure that inflation pressures are moderated in that way.”

And finally:

Westfield managing director Steven Lowy said Australian retailers were facing flat, or negative, sales conditions prompted by consumers saving more than ever.

Mr Lowy said both the state and federal governments needed to review the retail regulations imposed on the sector, which in some states was contributing to the slowdown.

“We think there needs to be a lot more flexibility than there is now,” he said. “There does need to be some reform with regards to the micro regulation.”

Wowsers. Just imagine what it would be like if we didn’t have mining?

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What really bugs me about this is that each of these services industries, although going slow, is doing fine. The one part of the economy that is being decimated is the one we’re going to need most when commodities pop, non-resource exports. Where is their jawboning? Where is education? Where is tourism? Where is manufacturing?

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.