Labor must gut the Reserve Bank of Australia

Here’s the chart that has destroyed the credibility of the Reserve Bank of Australia:

And here is the very obvious reason why it failed so horribly:

The bank focused on unemployment when it should have been watching underemployment.

Now, here is a sample of the lives that the RBA has made much worse than they needed to be, via the ABC:

Julian Evans is juggling several casual jobs but desperately needs more work.

His main job is at a hospital, where he works 15 hours a week as a theatre orderly.

The taekwondo black belt also runs some martial arts classes for five to six hours a week, and for extra cash he does a newspaper round on the weekend.

He also occasionally volunteers for an advocacy group for jobless people.

“Working at the hospital gives me a reasonable number of hours,” he said.

“But because it’s casual, and it’s based on need, I don’t always have a shift that’s as long as I might like.”

With about 26 hours of work each week, Mr Evans is not unemployed – but he is one of more than one million Australians who are underemployed.

He cannot get the hours he needs to get by.

With three kids, two nephews, the rent and the bills it means money is quite tight.

To get a bit more cash, Mr Evans said he collected empty refundable bottles.

“I have $7.30 from cashing in bottles yesterday,” he said.

Over the Easter and Anzac Day week, Mr Evans said he watched as his bank balance shrank to zero.

“Just to maintain basic living – I’m just not getting there at the moment,” he said.

“Not quite poverty line but I’m nudging it, definitely.”

Demand for part-time jobs growing

Heading into the federal election, Australia’s unemployment rate is 5 per cent, around the lowest it has been in five years.

But to be counted in the official employment figures, a worker only needs to be in paid work for as little as one hour a week – so the  unemployment rate does not tell the full story.

The rate of underemployment – which measures workers who have jobs, but are not being offered the hours they need – sits at 8.2 per cent.

“We don’t have a good understanding of why underemployment has risen so much,” Professor Roger Wilkins, of the University of Melbourne, said.

“It seems that employers and their demand for part-time jobs has been growing.”

While unemployment goes up and down over time, underemployment has been rising steadily for the past 40 years.

Graph showing unemployment vs underemploymentLately, it has trended down slightly, but since 2002 there have been more people underemployed than unemployed, and it is women and younger workers who are the hardest hit.

The rate of underemployment for women of working age is above 10 per cent.

For younger workers aged between 15 and 24 years, nearly 20 per cent are ready and able to work more.

‘I wish for the phone to ring for more hours’

Skye De Jarlais has a casual job in retail in Frankston, Melbourne, but still wants more work.

“I don’t know a single person that actually has a full-time job at this point, except for a handful,” the 18-year-old said.

“And even then, they don’t get paid a lot because it’s an apprenticeship. That’s hard to live on.”

She said she was only working 10 hours a week.

“Obviously, I do sit next to my phone and I do wish for the phone to ring for more hours,” she said.

“I’m not doing much [else in order] to make sure I’m available for the work.”

Rebecca Willmott, who works in Youth Transitions to Work with the Brotherhood of St Laurence, said a different approach by employers could have a big impact.

“Employers need to think more carefully about how many people they’re advertising jobs to,” she said.

“Recently we saw an employer advertise 20 positions for 10 to 15 hours.

“Now that could have been five full-time opportunities for a young person which would have been a far better outcome.”

The RBA needs to be held to account for the more than one millions Australians that it has failed, as well as for the wider nation. The forces that have killed Australian wage and wider inflation are getting stronger not weaker and the RBA does not understand them.

Yet we know exactly why underemployment has mushroomed:

  • household debt has ended the consumption boom;
  • fading Chinese growth and terrible tax policy has ended the mining boom;
  • this, in turn, has created a chronic Australian output gap;
  • Australian businesses tend use a European style kurzarbeit system of reduced hours to share pain rather the more ruthless head count chops of the US;
  • this has been re-enforced by the rise of the gig economy, especially ride-sharing services, as worker backstop;
  • a rampant mass immigration program has entrenched wage theft, FIFO and easier hire and fire;
  • and, finally, weaker unions, though that’s probably the least of it.

In short the structure of the entire labour market has changed while the RBA sat around drinking its own Cool Aid. Indeed, it cheered it all on while completely failing to grasp the implications for its own job.

So, how should we fix such a broken institution? Independence is not supposed to be an excuse for ineptitude. This is a crucial question for the incoming Labor Government which has promised to lift wages.

First, call an inquiry into the failure of Australian monetary policy. Have it run by a complete outsider like Frank Milne from the Reserve Bank of Canada, or someone that got the lowflation environment right in advance like Ross Garnaut. Make sure in advance that whomever it is will deliver an outcome that underlines the need for reform, new leadership plus endorse a shift in the RBA mandate to include underemployment.

Second, do not renew current RBA leadership contracts. Phil Lowe has to go when his first term is up. Aside from anything else, they were all there as the bank’s businesses bribed their way around the globe.

Third, appoint somebody from outside the bank as new governor. I suggest Graeme Wheeler but it can be anybody who has a clue about contemporary lowflation and the wasteland that is the Aussie labour market, as well as the clean and simple functioning of integrated monetary and prudential policy. I’ll do it if you like.

Fourth, empowered by the inquiry findings, encourage the new Governor to sack all existing governors and bring in his own, disband the corporate parasites board, wipe away the bank’s toxic group think culture, and re-integrate the bank with APRA (whose leadership must also be unceremoniously booted).

You may think that this sounds extreme, Mr Bowen, but believe me, if you do not gut this busted institution fast, it will gut your government even faster. And just in case you think this is a partisan comment, five slain prime ministers across both parties in seven years says otherwise.

Comments

  1. GramusMEMBER

    I don’t think ‘gut’ is the right word for it. Purge or clean, might be better choices.

  2. The way you describe it, it’s hardly the RBAs fault. It’s the fault of government policy around employment not keeping up with modern employment trends or not modifying the RBAs mandate to include under employment. Rate cuts are too blunt of a tool for such fine tuning of the economy at this point.

  3. DominicMEMBER

    Agreed on the RBA but it is not enough. Middle classes throughout the Western World are being gutted by monetary policy. Specifically, dishonest money. If people are being paid in a currency that is being created at will out of thin air then it is no surprise that they are going backwards. Drowning in debt and earning a wage that does not keep up with real inflation, what chance do they have?

    With no base of savings to drive investment and the economy and huge amounts of malinvestment as people get themselves guts deep in various bubbles this will not end well. Fiat is on borrowed time.

    • I saw a post by a Catherine Austin Fitts who was housing secretary for one of the Bush presidents and an ex Wall St exec and she said the same. I don’t know her story but some things in the post were wacky conspiracy but much of what she said we’re seeing in the west; I couldn’t find the link as it was quite a few years ago.. I look at many of my ex US colleagues who went through the dot com bust and financially they are still a mess with lots of housing and student debt. They’ll be on the food stamps if they could ever retire.

      • This development in under-employment and managing multiple jobs to say afloat reminds me of the US experience. Sadly, I think it will become mainstream in Australia for the lower classes, just like it is in the US. I also don’t see a solution in the US, so for us, I think it is here to stay.

    • And magically inflation doesn’t include asset price inflation, so they can blow any asset bubble they want to benefit the asset owning classes with impunity.

      • DominicMEMBER

        Correct. If I’d understood 20 or 30yrs ago what I know now, I’d have jumped into property (and any other asset) with both feet. Sadly the opportunity has well passed.

      • Dominic.
        Too true, rewinding back 20+ years I would never in my dreams have believed how irresponsible governments, bankers and ultimately the whole of society would become when it came to managing debt, housing and national cohesiveness (ie mimicking the economic, political construct of a 3rd world country where populism, cronyism and nepotism is endemic)

  4. The RBA is the biggest threat to any political party in power. They are all fighting amongst themselves not realising the threat is this unelected lot that holds the voter’s level of satisfaction in their hands at any time.

  5. GingerMEMBER

    To be fair, RBA has long called to wages growth to help hit the inflation target and there are no tools in the kit apart from official rate adjustment. Need to rearm with more weaponry as well as well. Any RBA with current weapons cannot fight a govt determined to shatter wage growth. The problem is as much political as institutional i.e. it’s us. Greedy bleating self-centred Aussies with I-got-mine-fu.

  6. Arrow2MEMBER

    ““We don’t have a good understanding of why underemployment has risen so much,” Professor Roger Wilkins, of the University of Melbourne, said.”

    Because we don’t ever mention immigration, he then didn’t say.

    What a wombat.

    • TighterandTighter

      But But But Peter Martin and GiGi Foster told me last night on RN The Economists that all these immigrants come here and get jobs straight away (because we mainly only bring in skilled visa workers) who then buy whole lotta stuff – tremendous amounts of stuff, based on Gigi’s asanine example of her moving here with hubby and buying kiddie toys, furniture etc – and this increases demand for labour (umm WTAF? perhaps trivially, but if they’re only buying STUFF, it’s just more volume of mostly overseas stuff) and some encumbents here *may* suffer, sure, but on aggregate we benefit because DEMAND and there’s absodoodaly no way that encumbent workers wages on the whole are suppressed at all because INCREASED DEMAND

      Omg I was so enraged
      Martin even had the temerity to say PLEASE CAN WE JUST STOP COMPLAINING THAT IMMIGRATION SUPPRESSES WAGES OF THOSE HERE

      They did make the valid point that immigration does benefit the migrant and we should not forget that (true)

      Also made the point we should essentially have open borders and allow free trade of labour

      no comment about parent visas sucking on the teat of Medicare etc and why immigrants couldn’t simply fly home to visit parents

      no mention of low paid migrants stuffing 10 to a room on slave labour

      OMG

      • These people have no concept of irregular employment, cash economy jobs or cash economy retail, and have never wandered into western Sydney (or anywhere more real than an economics textbook that tells you just how neatly everything ought to work without stopping to wonder if it might not exactly work like that in the real world).

        They are wombats because they are slow and not very useful and bury their head in the earth at any opportunity and thus are perpetually in the dark.

      • It’s pretty hard to listen to, although after a while it is comical. You get the feeling they have no understanding whatsoever of the real economy, they are like little caged songbirds talking about life in the forest.

    • DominicMEMBER

      So, a tenured Professor who should really have more answers than most, doesn’t understand what so many others do ..

      You can’t make this sh*t up.

    • How will they pay for all the promises. .. tax and cut. Punters are looking at what they’ll get and blind on what they’ll loose. I does not matter what party we discuss they all are dishonest with our taxes.

  7. kiwikarynMEMBER

    Don’t forget all those foreign students who are allowed to work 20 hours a week, which means you employ 2 of them on illegal wages, rather than one full time worker on legal wages.
    Also employing part timers where you can cut their hours at will to save money, and avoid paying penalty rates or overtime if you have to increase them, is another driver.

    • There are whole industries that resort to this devious behavior now and in fact cannot operate unless underpaying employees. Cleaning for eg often goes out to tender, shopping centres and council offices for eg.. Naturally they chose the cheapest tender from which contractor can only deliver with 1/2 price wages.

    • St JacquesMEMBER

      Bang on target as per usual. It’s having a huge effect on the young and the less skilled..

    • zaxxonMEMBER

      Was speaking to the cleaner at work (lovely lady from Zimbabwe) and she mentioned she was here on a student visa. So we got to talking and she has been here for a few years doing course after course (English, Child care etc) so she can stay in Australia. She is starting to worry because her current course is almost finished and not sure she can stay here much longer if she doesn’t get a real job. Complained that the wages she currently earns weren’t enough to live on…

  8. Independent LOL! Better find a decent robot or alien as any mere mortal is just as likely to make decisions to satisfy their own interests, biases or ideologies.

  9. The RBA faces the same challenges as the Govt of the day. Both are made up of representatives of a broad and diverse bunch of interests. Despite the Governors ideological leanings, they must contend with the other members and the interests they represent and protect. This makes the board moribund and unable to implement assertive or decisive change.

    The RBA (and Govts) are in place to maintain these finely balancing interests and the status quo remains, despite who is Chair (or PM)

  10. Not much in the way of ‘ broad and diverse bunch of interests’ in the LNP. Perhaps they diverge as to whether Toorak is worth living in or perhaps near the harbour in Sydney, or maybe owning some racehorses vs a yacht in a nice marina. And that is the problem with the current incumbents, they are not diverse. Joe Hockey nailed it when he said ‘houses in Sydney must be affordable on account that they sell’ but he did not mention that top line Rolls Royce’s and new Ferrari’s have a long waiting list and also sell

  11. robert2013MEMBER

    All Australian financial institutions are run by the same club of people who hold the same types of ideas gleaned from the same types of institution. It is unclear whether economics itself has much deep credibility. An independent Central bank needs a board that includes a majority of people from outside the FIRE sector. Anything else is a recipe for regulatory capture.