Once again we watch the spectacle of our politicians lining up to “condemn” the failure of the four major banks to pass on Reserve Bank interest rates cuts in full.
Yet both major parties supported the measure which facilitated the impotence of government to confront the monopoly power of the four large banks. The privatisation of the Commonwealth Bank effectively removed social or community obligations from the banking sector. The banks do exactly what we should expect from organisations whose only obligation is maximisation of profits and dividends to shareholders. There is no longer any public sector bank which, in pursuit of community obligations, could pass on the cuts in full, forcing private banks to follow suit to remain competitive. Not much point complaining once the horse has bolted, let alone when you were the one who let it out of the corral.
Monetary policy- the setting of interest rates by the Reserve Bank is now proving an ineffective means of stimulating an economy with stagnant growth rates and stagnant wages. The tax cuts implemented by the Coalition have also provided an inadequate stimulus. The main reason for this is that stagnant wages have led to higher levels of private debt and the Coalition’s tax cuts are being used to retire debt rather than for new spending.
In 2009, in confronting the GFC, the Rudd government introduced a $42 billion stimulus plan. Australia was among just four developed countries that avoided a recession in 2009 along with Israel, Poland and South Korea.
The Rudd government’s package included cash payments of at least $950 to families with school-age children, and drought-stricken farmers.
Federal Labor should call upon the Coalition government to immediately introduce a like measure now to stimulate our economy. In order to ensure that the money provides the required stimulus to a flagging retail sector, rather than being used to retire debt, the payment could be in the form of a voucher, redeemable only for purchase of a wide range of specified goods or services.
This is a short term measure for an immediate stimulus. The measure is likely to be opposed by the Coalition. The need for an immediate and targeted economic stimulus is not likely to outweigh the Coalition’s ideological objection to such payments. Labor would need to work its messaging to expose Coalition ideological hypocrisies as well as to ward off any downward envy towards recipients, by emphasising the overall benefits to the economy of the stimulus.
Politically it would do no harm to remind the electorate of Labor’s economic legacy under the Rudd government. In the current political context the Rudd economic legacy is both more recent and more relevant than the Hawke-Keating economic legacy. The latter still tends still to be emphasised in Labor narratives because of the relative political functionality of the Hawke-Keating governments.
In the longer term Labor at least needs to consider committing to a job guarantee. The government would guarantee a job to the unemployed or under employed- probably upwards of one million workers.
The federal government claims the jobs market is booming. But according to economist Bill Mitchell between August 2018 to August 2019 96.5 percent of new jobs created were in the public sector and most of those at state government level. The private sector created just 10,000 net jobs over the same period.
Participants would transition in and out of the job guarantee scheme, as normal employers needed to hire or fire workers. Private sector employers generally prefer to employ persons who are already in employment rather than the unemployed.
Of course the issue will arise as to how to pay for these measures.
There are a few broad options- raise taxes, raise non taxation sources of revenue such as seignorage, increase the budget deficit or helicopter money.
Helicopter money involves the central bank or central government supplying large amounts of money to the public, as if the money was being distributed or scattered from a helicopter. The measure is likely to be criticised for being potentially inflationary- oh but for a few points of inflation!
Inflation results when the amount of money in an economy exceeds it productive capacity because too much money is chasing too few goods and services. But the unemployed and under employed represent wasted productive capacity. Bringing them into employment and off welfare will have positive budgetary and stimulatory effects.