The great bullhawk crash lands on emergency rate cuts

All one really needs to be seen to be smart is Australia’s is to be loudest. That is the repuation at RBA press conferences of Warren Hogan, bullhawk and bullhorn.

He has been Australia’s loudest and most persistent bullhawk. Until now.

…at the heart of our productivity problem is a collapse in the efficiency of labour allocation within our economy.

The retirement of the baby boomer generation has seen a profound shift in the balance of supply and demand for workers in our economy. Migration doesn’t solve the problem as every new worker entering the economy from overseas brings demand with them.

…In the midst of this epochal demographic cycle turning point, we have a government dominating the labour market. The government’s rapid expansion of support for the care economy and public services more generally is pushing demand for labour into an economy that is short of workers. The private sector is struggling to find suitable labour, another factor making many types of traditional business expansion difficult.

…It is little wonder that we are seeing a collapse in productivity. The collision of demographically driven labour shortages and an expansionist government sector is driving productivity into the ground. No solution to our productivity problem will be found until the government pulls back on uncontested job creation.

…At this stage, the RBA seems to think a neutral cash rate is about 3.5%. There is no reason to wait. The RBA board should act decisively at the next meeting in July with an uncharacteristic 35-basis-point rate cut.

MB would like to finally welcome aboard one of the slowest-moving bullhawks in the history of the species.

Here is the chart you are looking for Wazza.

Capital shallowing out the wazoo. There is no danger of an inflation breakout in this economy.

The only danger is the opposite, as both productivity and wages fall away under pressure from quantitative peopling.

Forcing wages higher via public fiat is actually one possible answer, as pressured profits force up private investment.

I agree that we need a lot more private sector activity, but forcing wages higher via public fiat also drives investment into innovation.

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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.