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Neo-liberal Groupthink Triumphs Again

New Reserve Bank governor, Philip Lowe appeared before the House of Representatives Standing Committee on Economics last week and delivered the RBA Annual Report 2015 to Parliament.

If one was hopeful of a more progressive approach from the new boss, it didn’t happen at this gathering. Sadly for the country, Lowe gave every indication that he is as much a captive of Neo-liberal groupthink as is the government and the opposition.

The governor did, however, suggest to the committee that it was time to consider means other than monetary, to stimulate the economy, referring specifically to infrastructure spending.

He said, “The global sense is that monetary policy is not working as effectively as it might have in previous years……..The reason why monetary policy is not working globally is that no-one wants to use the low interest rates to increase their spending……Some entity could do that. Governments are one entity, but governments typically do not want to do that……..If someone in the economy can use their balance sheet to build assets within a rate of return greater than two per cent, that is another option.”

Hopefully by “someone” the governor covertly meant the government, which begs the question, ‘why is the government unwilling to use its spending capacity to stimulate a failing economy?’ Answer: it’s the debt monster again. A Labor committee member then asked, “How does a government borrow to invest in productive infrastructure and survive the ire of the ratings agencies?”

If one had any faith that anyone on that committee had a clue about the power of a currency issuing government in a fiat currency environment, that question would have killed it. To suggest that a currency issuing government should in any way be concerned about a ratings agency is astonishing.

The governor could have told the committee that simple fact, but he didn’t. Instead he made references to recurrent and capital expenditure, as if there was a difference and fell into the hole of lumping debt on to our children and grandchildren.

He could have said rating agencies are irrelevant. He could have said we don’t need to borrow to invest in infrastructure or recurrent spending.

maxresdefault He could have said, as Professor Bill Mitchell says, “a government can always increase its net spending (that is, its deficit) any time it chooses and successfully purchase any idle real resources that are available for sale in the currency the government issues, irrespective of its current fiscal position,” but he didn’t.

He could have said we can invest to the limit only of our resources, employ, add value, enjoy future returns that will enhance the lives of our grandchildren…..he could have said all that……but he didn’t.

He did make some thought-provoking comments that might have put the committee chairman David Coleman back a peg or two. Coleman asked Lowe to comment on recent, “employment growth that was greater than anticipated.” Was he expecting some glowing praise?

Lowe replied, “One of the things we are seeing is very, very strong growth in part-time employment whereas growth in full-time employment is relatively weak … I suspect that the labour market is not quite as strong as the headline unemployment rate data suggests because the jobs growth is not in full-time employment, it is predominantly in part-time employment. So there is probably a bit more slack in the labour market than suggested by the unemployment rate.”

Overall though, it was a disappointing start for the new governor, who is well aware of what a currency issuing government can do. This meeting was a great opportunity for him to make his mark and lay it on the line. But instead, he chose to speak neo-liberal claptrap.

untitled In the meantime, our economy will continue in the doldrums with fewer full time jobs and declining growth rates before the inevitable recession.

Philip Lowe missed a great opportunity. Perhaps next time.

You can read the Hansard script of the report here, if you like waffle. Better though to read Professor Bill Mitchell’s scathing assessment of it, here.

8 comments

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  1. Pingback: Neoliberal Groupthink Triumphs Again | THE VIEW FROM MY GARDEN

  2. totaram

    “Overall though, it was a disappointing start for the new governor, who is well aware of what a currency issuing government can do.”

    I think he has lost that awareness through his “training”, and so have all the others in treasury. This is the way things are done nowadays. Just look at how stacking the ABC board with right-wing culture warriors in Howard’s time has finally yielded results that you can see today. Notice that Labor did not see the problem and seek to undo it. John Roskam of IPA is a buddy of Bill Shorten. What can you expect? These people have been very successfully playing the “long game” for half a century and it is paying off. It will take another half century to undo the damage. I do not know if we have the time. I will certainly not be around, but my children will be. Fortunately, they know the problem and are taking whatever steps they can to protect themselves. Unfortunately, the pitchforks do not discriminate, so it is a bit dicey.

  3. Jason

    Thankfully he’s even hinting at infrastructure spending within the neo-liberal paradigm. But wow I think he knows he will lose his job and future roles if he states the truth. Glenn Stevens was only able to say what he really thought once he left his job. It’s so bizarre to watch this from the”real” world whilst these brainwashed politicians and economists have to toe the line. Do they know it’s real people suffering in unemployment by simple policy of underspending to give capital a line of desperate unemployed? What a waste of australias human resources. It makes me sick but I feel helpless. David Coleman is my local member I’m going to write to him and try to meet him if possible. But its hard to deprogram neo-liberal lies so easy. Pity our planet and children. Thank you as always John Kelly you and Bill and others are a small shining light of truth that’s slowly growing.

  4. Jennifer Meyer-Smith

    Hear, hear John and previous commenters.

  5. nexusxyz

    Dumb as a box of rocks. Monetary theory has not worked from the day it was introduced. It has just taken us multiple decades to find this out and be confronted with this reality. Economists and politicians are as dumb as each other. Zero idea how to grow an economy. Neoliberal economics and globalism is no more that organised theft.

  6. Jennifer Meyer-Smith

    So nexuxyz,

    please explain how we can move forward
    coz the present system in Australia and worldwide is losing ground for ordinary people really, really badly!

  7. Harquebus

    In case you didn’t see it, I would like to recommend a series of videos that I posted here. (5 * 1/2hr)

    The State Theory of Money: Your shortcut to understanding Modern Monetary Theory (Part 4 – final)

    They are about money and currency. They are not about bullion trading and don’t let the fact that it is presented Mike Maloney put you off.

    John Kelly.
    I will spare you this time in the hope that you will take the time to watch them.

    Jennifer.
    If you haven’t already seen them, I think that you will get a lot out of them.

    Cheers

  8. Harquebus

    “Modern banking is truly bizarre.
    They’ve created a system whereby we entrust our hard-earned savings to institutions that never miss an opportunity to abuse that trust.”

    Three reasons why the banking system is rigged against you

    Recall my previous warnings about Deutsche Bank.

    “One of the reasons why Deutsche Bank is considered to be so systemically “dangerous” is because it has 42 trillion euros worth of exposure to derivatives. That is an amount of money that is 14 times larger than the GDP of the entire nation of Germany.”
    http://theeconomiccollapseblog.com/archives/deutsche-bank-collapse-the-most-important-bank-in-europe-is-facing-a-major-liquidity-event

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