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.
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.
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.