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February 19, 2005
Economic Reform: RBA style
Australia will have to get used to years of stunted growth and higher interest rates as the economy hits the limits of its productive capacity. So said Ian Macfarlane, the Reserve Bank governor, to the House of Representatives Standing Committee on Economics, Finance and Public Administration.
That kind of reform package means that reforms of the 1980s and '90s have run their course. The good times are on the skids.
It is a simple message. Too simple. McFarlane is not worried about the US current account deficit. He reckoned the rest of the world will continue to finance the US current account deficit. If it did not, all that would happen would be a fall in the US dollar, which would not have serious consequences. I find that suprising.
In making the above reform proposals the RBA is stepping outside its monetary policy brief. Fair enough. But its limited understanding of economics shows.
Note that there is nothing about making a policy shift to a sustainable economy. What sort of world does the RBA live in that it can talk about economic reform without mentioning environmental reform? Does it not understand the hard fact is that a certain amount of global warming is inevitable and this has to do with energy, that this energy powers the industrial machine, and that we have energy markets?
The RBA's world appears to be one in which there is no awareness of the economy contributing to Australia's continuing environmental decline, or our growing environmental knowledge, or the steps that have been taken in environmental repair.
The RBA plan is all about boosting economic growth by addressing the supply side of the economy: slow growth comes from capacity restraints on export industries. This is an anachronistic understanding of the economy as it makes no mention of the insights of ecological economics into the way the economy is dependent on ecology.
Posted by Gary Sauer-Thompson at February 19, 2005 10:58 AM
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Tracked on February 27, 2005 02:02 PM
Comments
Shh, don't mention dirty words like sustainable when you're talking about economies.
One day, we are all going to work out that what we are currently doing just can't continue.
Hopefully, this will be before crunch-time, but given our human failing of self-interested blindness, I don't hold much hope.
Posted by: BigBob at February 21, 2005 08:19 AM
The RBA is quite conservative in terms of it understanding of public policy.
Even Treasury is able to conceptually connect economics to sustainability.
Not so the RBA. No doubt they would use the term sustainability to refer to sustainable economic expansion rather than the sustainable use of resources.
Maybe the RBA should stick to monetary policy until they do their work on sustainable development/sustainability.
Posted by: Gary Sauer-Thompson at February 21, 2005 06:57 PM
There are some comments on the quality of Reserve Bank's understanding of the big picture by Evan Jones over at Alert and Alarmed
Posted by: Gary Sauer-Thompson at February 27, 2005 01:51 PM