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February 19, 2005
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.
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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.