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December 18, 2009
The Reserve Bank of Australia is an independent institution in control of monetary policy. Currently it's monetary strategy is one of raising interest rates to shape economic growth to prevent inflation whilst reducing unemployment. It's primary focus is low inflation and, like the Treasury, it is GDP growth, reducing unemployment and raising productivity. It is not facilitating shifting the Australian economy to a low carbon one.
Carbon reduction is a distraction, or side issue. You can see this from this recent Monetary Policy in Open Economies conference---not one of the papers dealt with monetary policy and carbon reduction! Not one! Nor did any of the Research Discussion papers in 2009. Similarly with its statement on monetary policy in November:
The global economy is growing again after contracting sharply late last year and in the early part of 2009. here has been some recovery in world trade and most of the major economies now look to be expanding. The risk aversion that was so evident earlier in the year, particularly in financial markets, has abated and confidence is gradually returning.Asia is at the forefront of the global recovery. The region’s financial systems have not experienced the same dislocation as elsewhere, and the economies are benefiting from a recovery in domestic demand, underpinned by stimulatory settings of both monetary and fiscal policy. Growth in China and India has been particularly strong.
There is no mention of the UN conference at Copenhagen where all nation states are grappling with issue of economic growth and reducing greenhouse gas emissions; or even the effects on the economy of Australia's attempt to introduce an emissions trading scheme
The monetary policy statement goes on to say:
Economic conditions in Australia have also been stronger than expected. In contrast to other developed economies, the Australian economy is estimated to have expanded, albeit modestly, over the first half of the year and recent data suggest that this expansion has continued into the second half. Confidence has improved and spending has been supported by stimulatory settings for both monetary and fiscal policy. The Australian economy has also benefited from the strong bounce-back in Asia, particularly in China, with export volumes remaining broadly unchanged during a period in which global trade fell markedly.
The inference? The economic mandarins (monetarists?), who are concerned with stable money supply and low inflation, are basically out of touch with the long term transformation of the Australian economy. Do the understand the tragedy of the global commons? Doesn't Australia need to invest in home-grown energy to accelerate the development of green technology whilst boosting the economy and reducing unemployment? What if the Reserve Bank's monetary policy is used to push for less sustainable patterns of growth?
The statement on monetary policy ends thus:
Conditions in the global and Australian economies are significantly better than was expected when the Board lowered the cash rate to 3 per cent earlier in the year. The Australian economy is operating with less spare capacity than earlier thought likely, and the outlook for the next few years has improved. Given this assessment, the Board has judged it prudent to lessen the degree of monetary stimulus that was put in place when the outlook appeared much weaker, increasing the cash rate by 25 basis points at both its October and November meetings. The cash rate remains at a low level, and a further gradual lessening of monetary stimulus is likely to be required over time if the economy evolves broadly as expected. The Board will continue to monitor developments closely and set monetary policy so as to promote sustainable growth in the Australian economy and keep inflation consistent with the medium-term target.
If the aim of monetary policy is to promote sustainable growth in the Australian economy --the Reserve Bank's own goals--then shouldn't 'sustainable growth' include cutting greenhouse gas emissions? Or is the Reserve Bank's assumption that if climate change is real, then we should let pure markets operate to solve it, even though climate change has shown how spectacularly impure markets can be. It is the market failure par excellence.
If high unemployment is to high price to achieve low inflation, then so is a heated up world.
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http://www.rba.gov.au/about-rba/boards/rba-board.html#members
Had a look at the Board of the Reserve Bank?
Full of big business types, and I mean BIG, they form a majority of the Board.
Some of the companies represented:
CSL
Origin Energy
Coca-Cola Amatil
Prime-Ag
Wal-Mart
Bluescope Steel
Brambles
James Hardie
Nufarm
Plus Warwick McCibbin who has been vocal against the ETS.