What a day it was for the chattering classes. The PM launched the Lowy Institute in Sydney in the presence of its billionaire sponsor, his family and sundry other rich and/or famous people. At the same time, in the presence of Australia’s elite economists, social analysts and writers and editors of The Australian, the treasurer spoke of Australia’s economic challenges.

There’s widespread agreement that, after 14 years of growth, the Australian economy has reached the point where demand is close to available supply in important sectors, and this is a challenging management issue. My questions are:

  • Why has (acknowledgment of) the current supply side crisis come upon us so quickly?
  • Why did the Reserve Bank and/or Treasury not raise its concerns several years earlier?
  • Why did the Reserve Bank not tighten monetary policy far sooner, both to delay and reduce the brutality of the demand curve meeting the supply curve apparently quite suddenly, and to focus the political process on the need for more and faster reform?

In answering these questions, I focus not just on the economics but the political economy of economic policy. The bottom line is that it will be difficult to avoid a rather nasty interuption to Australia’s run of 14 good years.

Read more on the Henry Thornton website here.

Peter Fray

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