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the demons of rationality « Previous | |Next »
February 5, 2008

Under the rational surface of an enlightened neo-liberal economics lurk the demons. These demons are created by the free market itself and they require some form of economic management or governance to prevent them from doing too much harm to the people who matter.

inflation.jpg Alan Moir

Australia, as the commentators are telling us, has a big inflation problem. Prices are just going up and up. So ordinary folks need to be squeezed to reduce their demand through increased interest rates. If some with high mortgage debt lose their houses from the higher interest rates in the process, then that kind of suffering is the price that must be paid for the greater good. The greatest good for the greatest number is the economic criteria.

As the processes of the free market are pretty rough, so they need to be managed. Economic management or governance is pretty crude. Demand must be squeezed because little can be done about increasing supply in the short term. Strange isn't it.

n his column in todays AFR former NSW auditor general Tony Harris suggests that the Federal Treasury was either bullied or cajoled into hiding its real views on inflation before the election.His argument is that just before the federal election inflation was not a problem, even for Treasury in its Outlooks issued in October 2007. It was forecasting inflation for 2007-8 and 2008-9 of 2%. Nothing to worry about according to the best professional judgements of the department economists. All is well, inflationary pressures would ease. A month or so latter, with a new government in power, Treasury was telling Rudd and Swan that inflation would exceed the Reserve Bank limits for the next 18 months. Did Treasury trim its sails for Costello and Howard in the leadup to the election? Did Treasury massage their own forecasts for political purposes?

Is it trimming its sails now to justify big budget cuts to government spending on welfare, health and education? Is it providing cover for Mr. Fiscal Responsibility--discipline, caution and economic responsibility-- to follow the neo-liberal policy prescription and take slices out of the budget to pay for the tax cuts they favor.

Update
As expected the Reserve Bank raised the cash rate by 25 basis points to 7.0 per cent. Inflation has been forecast to remain above the Reserve Bank's 2-3 per cent management bracket for at least a year. Interest rate rises are supposed to slow the economy but it hasn't happened yet.

| Posted by Gary Sauer-Thompson at 8:47 AM | | Comments (1)
Comments

Comments

What do the following all have in common?
Coogee Resources
CSL Limited
Coca-Cola Amatil
Woodside Petroleum
Faifax
Wal-Mart
Bluescope Steel
Brambles
Telstra
James Hardie
Nufarm

And, last one, which contains a clue:
McKibbin Software Group.