Given Michael Pascoe’s kindergarten economics is now running the central bank, it is only fair that we give him plenty of space today to expand upon the doctrine at the centre of RBA thinking:
Maybe RBA deputy governor, Phil Lowe, had that among the material at the back of his considerable mind when he made the most valuable contribution to today’s House of Representatives hearings.
He was introduced by his boss as having “very strong views” on what’s needed to get Australia going, on our reticent “animal spirits”. On a Reserve Bank scale of emotion, it was nearly a cry from the heart:
“At the end of the day, monetary policy can’t be the engine of growth in the economy. We can help smooth out the fluctuations, we can’t in the end drive the overall growth in the economy.
“It’s clearly structural issues that do that… Australia is going to be a high wages, high-productivity, high-value added economy – that’s where we want to be, that’s where we could be, that’s where we should be. If we’re going to find ourselves in that position and sustain ourselves there, then people need to be able to take risks, they need to be able to be rewarded for risks and we need to innovate to find new ways of doing things better.
“So I think it’s somehow enlivening the entrepreneurial and risk-taking culture, innovation culture, so that we can be the type of country that has high value-added, high wages and high productivity. I think culture’s important .
“In my perspective, I think our society is becoming too risk adverse, the way we think about risk has got distorted and we’re not paying enough attention to returns and we’re paying too much attention to risk.
“I think if we invest more and more effectively in education, in human capital accumulation and infrastructure, so it’s risk taking, education, infrastructure, they’re the things that are going to help us be a high wage, high productivity, high value added economy.
“But the details here aren’t things the central bank are expert in, but they’re the ingredients to be a successful economy in the next 20 years.”
Correct, it’s a structural issue but it’s not confidence, for heaven’s sake, it’s competitiveness. If you can’t compete what have you got to be confident about? We are not risk averse. We are being herded into the wrong risks – unproductive assets – in part by the RBA, and that risk-taking is killing our competitiveness. It’s not bloody rocket science!
What Stevens and Lowe should have said was:
- Australia’s principle economic adjustment is to restore the real exchange rate to levels where import competing and export business can resume investing
- monetary policy can have a limited effect on this challenge, especially in the context of a global currency war that artificially props up the dollar
- we announce today in tandem with APRA, that Australia will launch new macroprudential tools aimed at cooling the housing market. When that end has been achieved interest rate will be cut further to lower the currency versus all major competitors
- while the RBA can make this contribution to growth, it beseeches the Government to also:
- begin an aggressive reform campaign aimed at raising productivity, including implementation of the Henry Tax Review
- immediately pass all proposed infrastructure spending to the Productivity Commission for modelling and assessment
- launch a mini-Budget that restores fiscal credibility within a framework of shared and equal sacrifice of middle class entitlements
- undertake major supply side reform for housing supply at all levels of government.
That is what is needed. That is what would restore confidence. And without it you will be whining about poor investment until the cows come home.
If this is the best that the RBA can do then it’s time we appoint The Pascometer as combined central bank governor and deputy and save ourselves the million dollars plus wasted on senior salaries.
