Philip Lowe RBA 2018 economic data housing prices unemployment income
RBA governor Philip Lowe (Image: AAP/Dean Lewins)

Liquidate labour, liquidate stocks, liquidate the farmers, liquidate real estate. Purge the rottenness out of the system.

Andrew Mellon, 1931, via Herbert Hoover

The Reserve Bank and its governor Philip Lowe have infuriated Australia’s remaining neoliberals by cutting interest rates. And unfortunately for the latter, there’s more to come.

After yesterday afternoon’s rate cut to 1.25%, Lowe last night flagged that another rate cut was likely — if not next month, then before the end of the year.

“The board has not yet made a decision,” he said in a board dinner speech, “but it is not unreasonable to expect a lower cash rate. Our latest set of forecasts were prepared on the assumption that the cash rate would follow the path implied by market pricing, which was for the cash rate to be around 1 per cent by the end of the year.”

The need for stimulus for the so-called “strong economy” was demonstrated three hours before the bank cut rates yesterday when the Australian Bureau of Statistics released April retail sales data. That showed a surprising fall of 0.1% (the market had been expecting a 0.3% rise). Worse was what is happening in NSW, where retail sales fell 0.4% in seasonally adjusted terms. And the decision was confirmed by today’s GDP numbers, showing the economy grew a miserable 0.4% in the March quarter, mainly because of government spending, bringing annual growth down below 2% to 1.8%, its lowest levels since the aftermath of the financial crisis.

There was better news on the current account deficit: the March quarter deficit fell sharply, thanks to the highest trade surplus ever recorded in a quarter. That added 0.2 percentage points to the GDP data and pushed our terms of trade up 3.1%, on top of the same in the December quarter, thanks to higher iron ore prices and the slightly weaker dollar. 

That’s fantastic for the tax revenues of Western Australia and the Commonwealth, but is doing nothing to boost activity elsewhere in the economy. There’s no lift in investment, there’s no boost to wages, there’s no general feeling of prosperity to buoy consumers facing a decade of stagnant wages. 

For neoliberals and industrial relations hardliners, however, the interest rate cut is a disaster. Despite the growing evidence over the last year that the next interest rate cut could be down, not up, The Australian Financial Review has been pushing for a significant tightening of monetary policy, repeatedly going to neoliberal economists Warwick McKibbin and Warren Hogan, and whatever screenjockeys and CEOs could be found to support them, for justification.

That justification has been entirely ideological — that low interest rates are a kind of policy laziness, an “ultra-cheap money tonic” to which we’d become addicted. Interest rates needed to be lifted, “even if it comes at the cost reaching full employment”, as Hogan insisted.

What the neoliberals wanted, beyond a punitive rate increase that would purge the rottenness from the system, was further economic reform. Not the kind of actual reform identified by the Productivity Commission, when it was asked by the government what was needed to lift Australia’s faltering productivity growth — like improving Australia’s human capital through more effective health and education funding, or a carbon price to get emissions down. They’re pushing for the sort of reform business wants — workplace deregulation and lower company taxes. In its editorial today attacking the rate cut, the AFR trotted out this line yet again. Michael Stutchbury and co. want “reforms to the tax system, to workplace regulation” that will avoid us “being dragged into a disturbing ultra-low interest rate world”.

This splendidly demonstrates how obtuse neoliberals are. It is exactly their policy prescriptions that have given us this “disturbing ultra-low interest rate world” — a world in which corporations are so powerful and governments so disempowered they can push down wages, refuse to pay tax and treat customers — including other business — with contempt, all while throwing money at shareholders instead of investing it.

It’s a world in which the only innovation on display from many Australian companies is in their methods for encouraging politicians to give them handouts or change regulations for them. One in which voters, deeply angered by wage stagnation and unfair tax systems, refuse to cop any more of the kind of deregulatory reforms that have entrenched the power of the companies the AFR reflexively supports.

But neoliberals can only think of one thing: liquidate, liquidate, liquidate.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey