The Reserve Bank of Australia Economically Out Of Touch
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Many of us are doing it tough downunder. Stagnant wage growth over the last twenty years and now, rampant inflation is screwing the ordinary Australian. Is the Reserve Bank of Australia economically out of touch? Is Governor, Philip Lowe, who is instigating the fastest rise of interest rates on the cash rate ever seen in the nation’s history doing more harm than good? His warnings about the dangers of a wage-price-spiral are rooted in the experiences of the 1970s and not relevant to the causes of inflation in 2022-23. The RBA’s primary role is to protect the Australian currency and beating inflation is paramount to that function. If the governor, board, and bank’s economists do not properly grasp what is going on in today’s economy aren’t we flying blind?
Corporations Recording Record Profits While We Struggle
A recent release from The Australia Institute and its chief economist Dr Jim Stanford has identified corporate profits during this period as the main culprit in a profit-price-spiral fuelling the 7.8% rate of inflation in Australia. Corporate profiteering is the difference between a level of inflation in the RBA’s desirable target range of 2-3% and what we are actually experiencing. The proof is in the figures, because if these price increases by companies were justified they would not be recording record profits.
- Qantas records a half yearly $1.6 billion profit.
- Commonwealth Banks of Australia (CBA) records a $5.1 billion half yearly profit.
- Santos records a 300% half yearly profit increase to $1.66 billion.
- Ampol records a 30% half yearly profit increase to $325.5 million.
- Woolworths profits up 25%, and Coles profits up 11%.
Does it make you feel good to know that these companies are rolling in record profits whilst you and I are doing it tough?
“A Profit-Price spiral is the main driver of inflation in Australia, rather than a supposed “Wage-Price” spiral, which does not exist.”
- (The Australia Institute, 24th Feb 2023)
RBA Board Bereft Of Voices Representing Ordinary Australians
The RBA board is made up of bankers, wealthy business people, and economists. Their world is the top end of town. Record profits are a sign of their success in their eyes. Philip Lowe tells Australians that some of them are going to have to do it tough for a number of years while he endeavours to wrestle inflation back under control. Rising interest rates impact upon the broader community through the flow on effects. Dampening spending within the economy costs jobs as workers are laid off during economic downturns. Rents are at record levels throughout Australia because of a shortage of housing and social housing in particular. Property owners and investors in debt to the banks are forced to pay more, every month, to maintain their loans. These imposts are, often, passed on wherever they can. Higher costs are distributed throughout the economy. Hundreds of thousands of Australians are struggling to keep their heads above water, financially speaking. Energy prices are high and going up even further. Food costs are very high, especially fresh food. The cost of living is biting many Australians. Philip Lowe earns more than a million dollars a year in his job, as governor of the RBA.
Can the super wealthy understand ordinary Australians?
Australia’s Economic Commitment to Unemployment
Australia, under the economic guidance of the RBA, has had an acceptable 5% unemployment rate for much of the last 50 years. This has been the RBA’s anti-wage-price-spiral setting to provide a permanent unutilised labour pool to put downward pressure on wage growth in the Australian economy. I think about all those hundreds of thousands of working age Aussies who have been surplus to requirements. I probably consider myself to have been one of them over this period. We could have had a real commitment to full employment by our governments but the economic thinking in the 1970s was to have this inflation fighting fail safe in place instead. These folks were the sacrificial lambs for the Australian economy and the RBA economists running the show.
Voices are speaking up about the failure of the RBA under the leadership of Philip Lowe. People who represent sections of Australian society who do not have a seat at the top end of town.
“Sally McManus from the Australian Council of Trade Unions wants to see the board — and RBA — broaden out what it knows about wages.
“They’re so sort of stuck in a 1970s way of understanding how Australia works,” she argued, pointing to massive changes in the labour market around unions, industrial laws and collective bargaining.
“Wages have been depressed because workers’ bargaining power has been depressed. [The RBA] constantly talk about a ‘wage-price spiral’ where this was never on the cards.
“They have a blind spot. They don’t understand, in the 2020s, how wages work in Australia. And that’s a big, big problem when you’re making such large decisions that affect everyone.”
- (Gareth Hutchens, ABC News, 28th Feb 2023)
Workers Not Sharing The Wealth Of The Nation
Workers in Australia have not been sharing in the wealth of the nation for a long time. Successive Coalition governments have championed the top end of town at the expense of ordinary Australians. Union powers have been diminished. The voice of the ABC, as an independent media source has been attacked by Coalition members of government time and time again. This has been accompanied by cuts to the ABC budget and consequent reductions in its service. Record corporate profits have come at the cost of rampant inflation. Companies are gouging profits back after the pandemic, despite the fact that many corporations’ bottom lines were improved during the pandemic.
Swiss Bankers & Low Inflation In Switzerland
Switzerland is a nation famous for its banking sector. Inflation has been far more moderate in Switzerland over the last 18 months in comparison to places like Australia, America, and the UK. The Swiss have kept their utilities in government hands, which has meant there have been price controls mitigating the effects of the war in Ukraine on energy prices for their citizens. More generally, if companies in Australia are profiteering during the current economic climate, which the evidence from Dr Stanford’s research suggests, then, price controls may need to be considered.
Neoliberalism & The Billionaires
The popularity of Neoclassical economics and neoliberalism in government economic policies over the last three decades has seen the privatisation of numerous sectors, here in Australia and around the globe. Have these deregulations and privatisations delivered better outcomes for the majority of consumers? We, the people, were told it would mean cheaper power bills and that has never happened. No, they have delivered untold wealth to a small coterie of insiders, creating a class of billionaires. The price shocks we are seeing in energy and other industries where oligopolies exist are because of the market and the lack of safeguards present. Ordinary people are being ripped off by the market and by corporate greed fuelled by a lack of competition for consumers. This is not the free market operating as it should, this is a manipulation of the economy by a select group of insiders. Right wing conservative governments have feathered the nest of political donors, mates, and such like at the expense of ordinary citizens. How often do you see government ministers who made decisions in favour of these companies ending up on their payroll once they have left office. Too bloody often for it to be a coincidence. This is corruption and it has been occurring under the noses of an apathetic electorate. Many Australians are sold a narrative by these same political operatives that their wealth is at risk from socialism, when they are being fleeced by these insiders under the guise of the free market. Trump voters in America are in the same position, supporting a Teflon billionaire who is ripping them off and claiming to be their champion. Stupid is as stupid does.
“Philip Lowe says that profitable banks are good for Australia, it’s good for us. But I think we have to ask good for who?”
Ms Kuehlmann isn’t alone in asking questions about the Reserve Bank and the leadership of its governor, Philip Lowe.”
- (Daniel Ziffer, ABC News, 28th Feb 2023)
The current economic system in Australia is set up to make the wealthy wealthier. Housing is unaffordable for the vast majority of Australians. Even those who are not trying to own property are struggling to afford the rents on the rooves over their heads. What kind of nation makes housing an unaffordable factor for its citizens? How is that an indicator of economic success for the RBA and the government of the day? Prices on essentials like food, rent, and energy are too high for the working poor and the unemployed. Wage growth has stagnated on Philip Lowe’s watch. Now, inflation is way above where it should be and his actions are to make things economically worse for those least able to afford it by raising interest rates to depress the economy. Whilst crowing about record bank and corporate profits for his buddies at the top end of town. This is the Australia we live in 2023. by Robert Sudha Hamilton
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