Gary,
I wonder what the tipping point is for our market economy that would provide tolerance for Government intervention over Bank rates,petrol prices etc. After all we accept Government intervention in the car industry,and climate change will provide the push for increasing intervention in the energy market. Why shouldn't Government intervene in the money market when the community is badly effected. What the trigger for that would be I can only wonder. But bench marks are set for the Reserve Bank?

Gary,After reflection over lunch, what ever has happened to the Triple Bottom Line.Another way of expressing my previous comment would be "what should be the balance in our system between Profit,Needs of Society, and Debt"? Why do CEOs and profits on investment have to be bigger and yet bigger each year?

Len,
does the executive (Swan +Co) have the power to do anything other than put political pressure on the banks to temper their greed?

Gary,Nan,
There is an article by Ron Guest, a Prof. of Economics, on ABC on Line with 30+ comments.They remind us that interest rates were once controlled by legislation,not very successfully. Some of the comments touch on the points I raise. You will see there is apparently no Constitutional reason why the Executive could not take action. There are of course many political ones.But at least people are debating the issue.

Len
what is the link to the Ron Guest article?

Nan,
Go to ABC on Line, click on News, click on Comments and there you will find it on the left of the page. happy searching.

Len
It took me ages to find. It's under 'opinion' not 'comment'. It would be much easier if you gave us the link--ie., Ross Guest's Interest rate chest-beating is a con article. Do you know how to do links like that?

Okay,
I've glanced at the Guest piece. I don't see that he is arguing for government intervention to deal with the credit crunch crisis in the global economy or the building up of inflationary pressures. Quite the opposite:

Political pressure on the RBA is against the national interest, as is pressure on the retail banks. RBA independence is crucial for controlling inflation, not least because it anchors inflationary expectations which therefore anchor wage claims and other cost-push pressures on inflation. And controlling inflation is, ultimately, in the interest of the battling household more than the rich in society, because the rich can better protect themselves against inflation through ownership of assets.So on equity and efficiency grounds, it would be better for politicians to refrain from cajoling, persuading and otherwise influencing both the retail banks and the RBA on interest rates.

That's an argument for a hands off approach by the executive. Let the RBA handle it. It's the standard neo-classical economics position about the state regulating the market.

Most of the articles bash the money power commercial banks rather than engaged with Guest's governance argument. What was the argument you were referring to Len?

Nan, Sorry to inconvenience you!The short answer to your question is NO.

Gary, The argument is about Government intervention. Obviously the good Prof. is not in favour, some of his comentators are, as are others in the community.My point or question really is:
Is there a point in our market driven society at which the community will decide that the market has failed badly enough to warrant Government intervention? Iguess such a point word be a world wide depression. Some might say intervene before it happens. We sanction intervention in other sectors. Why is the market so sacred? As many have drawn attention to recently, we live in a society not an economy. Or is that just a wish?

Len, you have to look at the political considerations as well. We need interest rates to rise to control inflation. Unfortunately that means that some people will default on credit. The government needs to look like it cares about voters, so it makes noises about bad, evil banks to keep voters on side.

The independence of the RBA limits what governments can do for purely political purposes, relieves governments of responsibility when rates rise, and fits the free market model of society as economy.

In the society as society model governments would have a series of options available to at least cushion the impact of global markets on local lives. We're not structured that way at the moment.

Len,
you write:

Is there a point in our market driven society at which the community will decide that the market has failed badly enough to warrant Government intervention? I guess such a point word be a world wide depression. Some might say intervene before it happens. We sanction intervention in other sectors. Why is the market so sacred? As many have drawn attention to recently, we live in a society not an economy.

I much prefer interest rates being determined by the Reserve Bank in response to economic policy and climate, rather than by the governing party and their history to help them stay in power.

Don't you see the RBA action in raising interest rates as a form of intervention? What is gained by the government of the day acting to stop interest rates being increased.

Who wants to return to the situation where the RBA is in the pocket of the Treasurer?

On a wider note the government is intervening regularly---eg., infrastructure development.

Lyn,
you write:

In the society as society model governments would have a series of options available to at least cushion the impact of global markets on local lives. We're not structured that way at the moment.

What would these options be when we are living in boom times ---our recent economic prosperity is mostly the result mostly of the mining boom and China's growth? Take China out and there would be no boom.

Even South Australia is being branded in terms of the next hot spot to invest in because of the uranium boom. Adelaide is buzzling from excitement so developers don't miss out. Invest before it is too late.

Gary,Lyn,
I am an observer here.I have no view of intervention by government one way or the other. I just wonder how bad things have to get before enough people want action taken by government. It does come back to the point about the economy and society. What is the balance and who should determine that balance and how.Your point about the role of the Reserve Bank is certainly one answer.Its a better answer than in the USA where we have had their Reserve and old George having a go at the same time.

Gary, directing the tax cuts to superannuation has been floated, although I don't know how that sits alongside allowing people to access super to buy a first home.

Hawke and Keating were forever telling us to tighten our belts. Maybe Rudd and Swan will tell us to pay off our credit cards.

Even if the old redistribution types of intervention were still available, easy credit has changed everything. Boom and prosperity have different meanings and happen on larger scales. Apparently we're all shareholders now. The Commonwealth Bank has been sold. Yet we still hold the government of the day responsible when things go bad for us.

We haven't seen big federal government infrastructure projects for so long we're going to have to get our heads around that again. The Murray Darling would be a good place to start.

Len,
George Bush's solution for everything is more tax cuts. How will that help someone whose see their home asset devalued or lost their home? Similarly with the Wall Street Journal. And Rudy Giuliani. Not surprising is it, especially when Giuliani's tax cuts are aimed at people who already have lots and lots of money.Surprising eh?

Lyn,
well directing the tax cuts to superannuation is a good idea----much better than using it for consumption in the height of a boom. Allowing people to access super to buy a first home enables them to acquire capital.

Gary,
I agree. That is an issue here also.I just do not believe the many academics,bureaucrats and polies of the world are not clever enough to work out a range of policy solutions for us to selectively choose from. Might be easier for you,Lyn and me to make the choose than those that should!

Len,
Ross Guest has an op-ed in todays AFR. He does not like any "distortion" of the free market by governments. He says:

Price controls are particularly insidious.We don't need low proces, we need the right prices, whther its petrol, universaity places, medical services houses or credit. Prices need to be free to to play their crucial signalling role so that scarce resources in the economy go where they are most valued.

He gives an examaple:

For example, by preventing universities charging a price that some students are prepared to pay and that covers the universities' costs, some students will miss out. Those students value that place at more than the cosat of providing it. Why shoululdn't they be allowed to have it?

So what happens to those aspiring students who cannot afford to pay the full price of a university degree? Do they miss out? What has happened to fairness?
Guest's op-ed is an attack on the Rudd Government because the evidence indicates that it is moving towards greater regulation and direct price control (ie., prohibiting universities from charging full fees to domestic undergraduate students. This amounts to a price cap)

Gary.
Thanks. I do not see AFR.So who in Guest's world sets the "right price"? The seller? Its even more complicated in the case of a chain reaction from producer or manufacturer to a retailer to a buyer
It is unlikely that the buyer would have much say.As you say where does fairness come into it or how does fairness enter the picture unless by Government.So some intervention must be OK? Your piece on the USA situation is interesting. Isn't Obama suggesting massive intervening?

Len,
in Guest's economic world the price is set by the interaction of supply and demand. When demand outruns supply the price goes up; when supply outruns demand the price falls. The market is an automatic clearing mechanism.