Jim Chalmers, ALP shadow treasurer, has shown the dead hand of Hayek, probably inadvertently. The conclusion from Labor’s call for a thorough review of the RBA, is that Albanese and Chalmers have devised no fiscal policy to work in tandem with the RBA’s decent remits.
This review is mainly demanded by the Government and economic critics of the RBA. However, John Edwards, former RBA Board member and biographer of Prime Minister John Curtin, argues it is a “copout” and a review should look at the entire economy and “not just one part like monetary policy”.
Paul Keating says it is more important for the government and RBA to have fiscal and monetary policy working together. Former RBA governor Bernie Fraser is no “fan” of a review either, telling the SMH “if the economy had not grown or there had been allegations of corruption” there would be a case. “But that’s not … what we’ve had”, Fraser said.
Indeed not, and the LNP’s dubious conduct coupled with the Treasurer’s push for more wage suppression (at the Fair Work Commission), worry many, including the RBA for years. It cannot work in tandem with this Treasury. Cuts to the old Newstart are also counterproductive and cruel. Spending on necessities declines and further jobs are cut.
In 2007, 4 per cent of surveyed Australians claimed to know anything about monetary policy; this applies to those who should know. An SMH editorial of April 8, ‘Review of RBA policy could help avert next crisis’, failed to mention that Nine Media’s Chair, Costello, imposed Inflation Targets when Treasurer. Targets are questioned as now “ill-suited”, because the SMH blames the RBA for failing to cut interest rates “early enough”. It also says, “when inflation is close to zero workers cannot ask for pay rises and the economy cannot grow”. Magical thinking?
The two central banks with explicit full employment remits are the US Fed and the RBA. The US Treasurer Janet Yellen (a former US Fed Chair) is now working in tandem with the Fed, aiming for full employment, greater wage security and taxes on multinationals. That checks asset inflations; but only Treasuries can implement these policies. Fed Chair Yellen begged the Board’s hawks not to raise the Fed Rate, while President Obama failed to bring in her hoped-for adequate stimulus.
No central bank can create full employment but as a remit it prevents the RBA or Fed from creating a recession to depression by raising their rates. Higher rates create more unemployment via firm or household bankruptcies and when times are slack. High Rates were one cause of the Great Depression, because few with power and wealth cared about employment or starvation.
Financial sectors profit from high central bank rates, low economic activity and low wages; Treasuries do not (if they knew), since there are less wages to tax and more interest to pay.
Friedrich Hayek wanted free banking, so that banks alone created money (becoming corrupt to boot), and the abolition of central banks and active treasuries. They allegedly interfered with the free market. Mis-interpreters of Darwin in favour of ‘survival of the fittest’ were close to Hayek’s dreams of a white male supremacy in a ‘spontaneous market’.
In Australia, Hayek-type depression views inspired the CBA chairman in 1929. The CBA was then a proto-type central bank and its dour, hawkish Chair Gibson – a business-man appointment – refused the new ALP government of Jim Scullin any supply for stimulus and a higher dole. In 1938 the CBA was judged to have prolonged and deepened Australia’s Depression.
The RBA under Menzies, rebadged in 1960 from the CBA, remained an envy of social democrats around the world. Under Governor Coombs, much was done, in an original way, to ward off many inflations and avoid unemployment. Today the focus is on slamming wage inflation alone, forgetting the worrying bank loan expansions, war spending inflation, price inflation and asset inflation like housing bubbles.
Eventually LNP governments gave in to private bank intransigence. Treasurer Costello was the worst. He removed the RBA’s prudential and supervisory powers and imposed the wage suppression of ‘Inflation Targets’. The Bank of Canada and RBA loosened these Targets from the beginning. In 1992 former RBA Governor Johnson said Targets gave central banks “all the freedom of the prison exercise yard”.
Also, underfunded regulators and supervisors such as APRA and ASIC are no match for a self-financed central bank. Private banks became corrupt from this alleged freedom, and gaily created more money with unconscionable loans, dubious schemes and financial crises (the GFC). So much for RBA’s current critics: many central bankers opposed these now forgotten impositions.
The ALP Rudd and Gillard governments worked in tandem with the RBA and prevented the worst. Australia proved a world first for lessening the GFC’s ravages. They also tried to control banking, controls the Hayne Royal Commission strongly supported.
That was torn up by Abbott et al onwards. Hayne’s key recommendations were torn up under Morrison and Frydenberg. This pair also menaced the RBA. Governments can make and break central banks. Treasuries appoint the central bank Boards. Luckily the RBA Act prevents bankers on its Board. But private banks whined throughout Australia’s long history of stimulus in face of recessions, and efforts to make the banks behave socially.
The RBA’s third remit, over and above full employment and price stability, is the welfare of the Australian people. But a government can shred the remits it dislikes.
Labor’s misunderstanding of central banks, through Jim Chalmer’s foolish call, is as dire as the LNP’s. It offers a retrograde step and the ALP duo, Albanese and Chalmers, apparently do not want to devise decent fiscal policy to serve the public or to criticise Treasury.
It’s a cheap trick to attack the RBA through failing to see that its constraints are made by LNP Treasurers aiming for austerity, led by private banks’ money-class wars. Very few people understand monetary policy, but the ALP makes ignorance worse. Central Banks are bankers to banks and to their government. The RBA deserves public support.
Jocelyn Pixley's research is on Citizenship and Employment (1993); Emotions in Finance (2004;2012), Mobile Capital, and Central Banks (2018), with CUP. She is an Honorary Professor in Sociology at Macquarie.
Contributions to Pearls and Irritations
Your contribution will fund quality independent comment and analysis in Pearls and Irritations
Contribute
