“Bitterly disappointing”: We are seeing a once in a generation policy failure

Thu, 12 Sep 2019  |  

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/rba-interest-rates-government-can-stimulate-economy-but-wont-210050650.html 


“Bitterly disappointing”: We are seeing a once in a generation policy failure

Imagine having the power to promote economic growth, lower the unemployment rate and set in train the conditions to boost real wages growth and inflation?

It would be immensely satisfying to change policies to improve the living standards and quality of life for every day, hard-working Australians and their families.

Wouldn’t it?

Next imagine a harsh reality where economic growth is weak and slowing, the unemployment rate is rising and wages growth and inflation well below a satisfactory level, and you choose not to wield the power reverse these uncomfortable circumstances?

Doing nothing, unwilling to pump some much needed cash into the economy because of a political dogma wedded to a notion that budget surpluses are good and that holding interest rates unnecessarily high so you might dampen demand for houses – which is seen as a problem - and household debt overwhelms your power to make things better.

It’s as absurd as a firefighter unwilling to put out a fire because it might waste water. Yet this is the situation that is before the Treasurer, Josh Frydenberg and the Governor of the Reserve Bank of Australia, Philip Lowe.

Mr Frydenberg is in charge of how much spending and tax the government will manage each week and month and year. He can change policies to spend a little more (infrastructure, education and health) or tax a little less, the effect of which would be to support economic activity and jobs.

Dr Lowe controls monetary policy which is a vital determinant of cash flows for consumers and businesses. Interest rates also set a threshold whereby investment, spending and hiring decisions are undertaken. A change in monetary policy is potent and can be delivered for free, with the stroke of a pen or at least the pressing of keys on a keyboard.

“Today I have cut official interest rtes by 75 basis points to 0.25 per cent.”


In the 100 days or so since the election, Mr Frydenberg has made is clear that he is unwilling to countenance any easing of fiscal policy. Sure, the election-promised income tax cuts have been delivered, but their objective was a political one, not economic. Never once before the election did Mr Frydenberg say the income tax cuts were an essential policy action to boost economic activity. Treasurer Frydenberg has made it clear the plans for a budget surplus is superior to policy changes to support the economy, jobs and wages growth.

That’s a pity.

Having held interest rates steady at a high level for two and half years, RBA Governor Lowe was forced to cut interest rates in June and July, having been an advocate of higher interest rates just six months earlier.

I suppose credit is due to Lowe for learning from his mistakes.

At 1.0 per cent, Australian interest rates still remain well above the rates set by most credible central banks during their episodes of disinflationary slow-downs and that is still a problem for the Australian economy. To boost growth, Dr Lowe could (should) cut interest rates to near zero but he has a preference to have higher unemployment and lower living standards than needed as he maintains his crusade against house prices and household debt. 

Without policy action by the government and the RBA, the economy is likely to remain a chronic under-performer. That means annual economic growth will be 2.5 per cent or less meaning the unemployment rate will remain above 5 per cent and could even exceed 6 per cent in a worse case.

It will be a tough time for the 710,000 people currently unemployed and additional 1.15 million underemployed. In these circumstances, there is no hope for a meaningful pick up in annual wages growth which will be lucky to hit 2.75 per cent, while inflation will struggle to lift to 2 per cent, let alone get to 2.5 per cent, the mid-point of the RBA target band.

And this is the upside of the outlook. If the US-China trade impasse expands and global economic conditions take a turn for the worse, the Australian economy will be in trouble – severe trouble. By then, it might be too late for policy makers to deliver a quick pick up. Rather they will be obliged to undertake rescue action to limit the damage. Budget deficits, negative interest rates and quantitative easing will be the order of the day.

It is bitterly disappointing to see this policy failure from the RBA and now the government.

A recession, while still unlikely, would see the unemployment rate exceed 6 per cent and destroy wealth and income.

This would be a problem of the government’s and RBA’s own making and if the economy remains weak into 2020, the RBA and government should be condemned for the first major policy stuff up since the lead into the early 1990s recession.

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How Labor lost the federal election SO badly

Thu, 07 Nov 2019

This article first appeared on the Yahoo Finance website on 20 May 2019 at this link:  https://au.finance.yahoo.com/news/why-labor-lost-the-election-so-badly-211049089.html 

How Labor lost the federal election SO badly

The Coalition did not win the election, Labor lost it.

The tally since 1993 for Labor is a devastating seven losses out of nine Federal elections. By the time of the next election in 2022, Labor will have been in Opposition for 23 of the last 29 years. Miserable.

The reasons for Labor’s 2019 election loss are much more than the common analysis that Labor’s policy agenda on tax reform was a big target that voters were not willing to embrace.

Where the Labor Party also capitulated and have for some time was in a broader discussion of the economy where it failed dismally to counter the Coalition’s claims about “a strong economy”.

In what should have been political manna from heaven for Labor, the latest economic data confirmed Australia to be in a per capita recession. This devastating economic scorecard for the Coalition government was rarely if ever mentioned by Labor leader Bill Shorten and his team during the election campaign.

This was an error.

If Labor spoke of the “per capita recession” as much as the Coalition mentioned a “strong economy”, voters would have had their economic and financial uncertainties and concerns confirmed by an elevated debate on the economy based on facts.

This parlous economic position could have been cited by Labor for its reform agenda.

Why animals are a crucial part of the Australian economy

Thu, 07 Nov 2019

This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/animals-crucial-australian-economy-192927904.html 


Why animals are a crucial part of the Australian economy

Animals are a critical part of the Australian economy, either for food, companionship or entertainment.

But every month, millions of sheep, cattle, pigs, chickens, fish and other animals are bred and then killed. Most of them are killed in what we define as ‘humane’, but no doubt tens of thousands are horribly mistreated, as are a proportion of the animals we keep as pets.

Animals are slaughtered to provide food for human food consumption, to feed other animals (your cats and dogs are carnivorous) and for fertiliser.

The Australian Bureau of Statistics collects a range of data on animal slaughterings and the most recent release of the Livestock and Meat data release included the following facts.