According to Wikipaedia, rent seeking is:
When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation.
The Reserve Bank of Australia and Treasury now epitomise this definition. How? They are advising Prime Minister Turnbull to hose down all reform efforts lest such upsets consumers, from Laura Tingle recently:
While a push on the participation issue suggests the government is looking for major savings in the welfare budget, federal cabinet has been warned by Treasury and the Reserve Bank that uncertainty about the economic outlook at home and abroad means it shouldn’t seek to make any really radical short-term changes in the budget which might undermine confidence and growth.
And from the RBA minutes yesterday:
Turning to developments in the household sector, members noted that growth in household consumption had increased in the September quarter to be close to its decade average in year-ended terms. Growth was expected to be similar in the December quarter, based on recent retail sales data, indications from the Bank’s retail liaison that trading conditions had improved in the Christmas and post-Christmas sales period, and surveys suggesting that perceptions of households’ own finances remained above average. Household consumption growth had been supported by low interest rates, lower petrol prices and increasing employment, despite relatively subdued household income growth. These factors were expected to support a further increase in consumption growth over the forecast period.
The RBA and Treasury are all-in on this short term growth play. And they’re pulling PMTurnbull’s strings:
“We looked very carefully at several proposals to increase the GST. We had the models and the reality is that you do not get the economic growth dividend that people had assumed there would be. The growth dividend is somewhere between nil and very small.
“The work we have done demonstrates that the so-called GST tax mix switch does not give you the economic dividend, the growth dividend that would justify doing it. There will be no GST increase taken to the election.”
Mr Turnbull said the government would look at negative gearing in the same way it looked at changing the GST.
We will look at these issues, as we did with the GST, very carefully and thoroughly,” he said.
Yet, literally not one single reform in the history of the economy would have passed this test. Reform by definition involves creative destruction and almost always delivers the second before the first. If reform is about freeing up capital for its most efficient uses, it obviously needs to be liberated before it can be redeployed. Reform is about structural change for long term gain, as Jeff Kennett put it yesterday:
“Our people are saying it’s not going to deliver the benefits in the short term but this isn’t a short race. We’ve got a huge debt, massive interest rates at $1 billion now in interest a month, $1 billion wasted. So this is a thing that we’ve got to address over a period of time and I think good policy deserves to be supported.”
So, why do I say the RBA and Treasury have become rent seekers? Quoting myself from Monday:
…Treasury’s miserably failed budget forecasts have humiliated treasurers and their policy-making, ill-directed agendas have squandered opportunity after opportunity, and a disenfranchised polity has floundered amid falling standards of living.
There has been another villain in this process. Beside the fiscal chaos, and advising each of the governments, has been one consistent voice that needs to share the blame. That voice is the Stevens RBA which has not only replicated the failure of four successive governments but echoed and amplified it.
When the great mining bust began the Stevens RBA was busy hiking rates and driving the currency to its post-float highs on the assumption that the mining boom was a thirty year phenomenon and therefore required a structural adjustment to “mining-led growth” that hollowed out non-mining tradable sectors.
As the terms of trade collapsed, the Stevens RBA wasted years defending this failing premise, consistently forecasting a flattening out of commodity price falls at absurdly high levels, misleading pollies that mining would still carry the economy. It’s still doing it.
When the penny finally dropped, the Stevens RBA panicked and instead of embracing the reform agenda that was needed to prepare the country for its post-boom adjustment, it egged on a rampaging housing bubble to back-fill its own collapsing mining boom vision. As such it actively prevented the one major adjustment that was needed to cushion the nation as the mining boom went bust: a falling currency, which has now been consistently overvalued for four years.
When it finally realised that mistake, the Stevens RBA embraced reform itself three years too late in the form of macroprudential tools that may pop its own housing bubble right at the moment when the great mining bust is turning into the global wreckage of the Mining GFC.
…So here we are. Economic policy is paralysed. And authorities manning the economic levers across the control room are actively promoting the fact.
With Labor opening the debate on genuine tax reform for the first time in a decade, we have the RBA and Treasury busily trying to hose it down to obfuscate their own blundering cyclical response to what was always a structural challenge. Indeed, in that effort, deluded or deliberate, they appear happy to sacrifice the rarest of rare moments in the Australian political economy: a chance to make generational structural change.
I can only speculate on why this is. Perhaps it’s the boys club protecting Glenn Steven’s imminent retirement and legacy. Perhaps it’s the final twist of the Pitchford Thesis mindset. Perhaps its John Fraser spending too long in markets. I really have no idea.
What I can say is that is took forty years to get to this opportunity and it is not worth throwing away on a few months of growth.
