Aug 22, 2016

The RBA can’t fix our growth woes — only government can do that

Extending the Reserve Bank's goal from inflation to nominal GDP growth is a foreign solution to a problem that Australia can't fix via monetary policy, Bernard Keane and Glenn Dyer write.

reserve bank

The call from powerful South Australian Senator Nick Xenophon and economist Danny Price to extend the Reserve Bank’s mandate to nominal growth targeting is an attempt to import a foreign solution to foreign problems.

Xenophon and Price want the RBA’s current mandate — an inflation rate of 2-3%, on average, over the cycle — extended to include nominal GDP growth, to reflect the fact that nominal GDP growth has been persistently flatter for a number of years since the financial crisis, with attendant impacts on government revenue and wages growth.

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5 thoughts on “The RBA can’t fix our growth woes — only government can do that

  1. Will

    On the one hand, Bernard (with apologies to Dyer), you bemoan the lack of government infrastructure spending, yet on the other hand you appear at least to largely dismiss the critique of neoliberalism. Isn’t it though precisely the hegemonic dominance of neoliberalism that is precluding western governments from the increased borrowing (and corporate tax collection) needed to invest in infrastructure?

    1. bruce hodsdon

      Bernard Keane’s piece was, to my reading, not a dismissal of on going critique from the left of neoliberalism per se, but of the misleading deployment of “neoliberalism” as a catch all whipping boy. I agree however that Bernard could have at the same time focused more on the neoliberal blanket obsession with government debt. As you rightly point out governments should be taking advantage of low interest rates to invest in properly selected infrastructure on a cost benefit basis. This should also be accompanied by taking infrastructure ‘off budget’ as has been done with the NBN and as proposed by a number of economists.

  2. bushby jane

    Wages may be growing slowly and real incomes may be rising, but living costs are rising more, so workers are less well off, unlike executives.

  3. Dog's Breakfast

    Even the 2-3% inflation rate is quite arbitrary. Worse still, the way things have gone the interest rate movements now have very little effect either way and may in themselves be contractionary, so the RBA really don’t have much they can do (except stopping cutting interest rates!)

    So it is up to government, and while spending is the answer, the only spending that will count is ‘good’ spending to help the economy, which is mainly in the form of infrastructure investment (think the NBN rather than more roads) handouts to the less wealthy (pensions, unemployment benefits, low wage employees) and make sure they do nothing for groups that will have no effect on the economy (medium to large business, high wage earners), or better still, increase their taxes to pay for the largesse to the less wealthy. Yeah, I know, crazy talk.

    1. CML

      Sounds good to me, DB…but I agree it probably won’t happen under this motley crew of a government!

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