I always wondered (well, ever since I have wondered about these things) why we had to get inflation down to 3%. What are the advantages of an inherently low inflation rate, over say one at 4 or 5%? Sure, when inflation is higher, you have wages and prices playing catch up, but so what? That's only a bit of mild disruption to the economy, surely. As long as inflation doesn't spiral out of control - is that the only real fear?
Or is it simply as you say, lower interest rates are good because they bolster the RBA's reputation - for keeping interest rates low?
[1] Since Reagan, the rich and the corporations have had their tax burden dramatically reduced and will fight tooth and nail to keep it that way, so govt revenue has been kneecapped.
[2] Revenue raising assets were sold to the private sector and there will be legal difficulties for the govt to re-aquire them except at great cost (and the govt hasn't got the revenue base from which to buy them back.
....
The buccaneer capitalists set this up as a perfect way to destroy what they saw as "socialism". More accurately, they created a massive corporate welfare scheme. Undoing this will be nigh on impossible. This is the Ponzi Scheme Australia has bought shares in. Good luck.
It seems that while most economists favour central banks raising the inflation target they fear that this will threaten the credibility of the central bank thereby destabilising the private sector.
The vast majority of Australia's mineral wealth should be nationalised and the profits used to fund public services. Multi-billionaire mining magnates should not exist.
Your link to comments on Conservative Professors led me here John.
Medieval Religious Universties were undoubtedly conservative but changed as their knowledge was challenged by science in particular.
Correlation between income & Republicans not unexpected but it’s interesting in Australia that Greens supporters have the highest education & income & aren’t exactly conservative 😉
The privatisation of airports made small aircraft companies more difficult to sustain. With major airlines dominating the best airport facilities, smaller regional airlines are pushed out. They will never prosper until they are given a fair go at airports.
Listening to Treasurer Chalmers today as he explained the National Account figures, stirred up a memory from the 1990s. For those too young to remember back over thirty years of macroeconomic management, the 1990s began with the “recession we had to have” under an RBA initiative sold hook line and sinker to the then Treasurer Paul Keating. The timing was awful, as Australia’s own recession was closely followed by a global recession, By 1996 Australia’s unemployment rate was in the double digits. The now Prime Minister Keating’s government was voted out of office. Today you could hear the wheels of this memory working on Treasurer Chalmers mind as he hegel his bets on backing the RBA’s tough stance. He knows that his governments, and his own, future is on the line. If the RBA succeeds in driving up unemployment, it won’t be the Governor of the RBA who will have a new job handed to them some time next year. Treasurer Chalmers is scared that a global recession may arrive before the next election. He may very well have to use his powers over the RBA if they try to raise interest rates again; and may even have to order them to lower rates. Political expediency will always win out over e economic theory.
It is also the agreed range by agreement between the government and RBA. It is not as if the government cannot move to increase the appropriate range for inflation targeting. The RBA is simply working within it agreed mandate with the tools it has.
There wa an observable trend back in 2006 of hiring preferences for top financial firms. Instead of concentrating just on economics and finance graduates, these financial firms went after top graduating arts students. I am not sure how it was that a honours degree in English literature was a useful degree for a finance industry career. But the finance firms were offering such graduates very large starting salaries. it’s reasonable to suppose that anyone would be mad not to at least give it a go. That may well explain the absence of conservative professors on arts faculties in the USA.
This has been a dog’s breakfast from day one. The loss of revenue from ownership of :Telecom ( now Telstra); the Commonwealth Bank; certain toll roads; airports; and electricity infrastructure has weakened, not strengthened , government budgets. Look at the Commonwealth Bank. It was sold at $7.60 per share. That was deemed to be its present asset value in the 1990s. Today just one Commonwealth Bank share is valued at over fifteen times that issue price value. Then there is Telstra. The mobile net set up across Australia was paid for with government money. Then a virtual monopoly was handed over to TELECOM as a privatised company. Even today this gives Telstra market dominance. And what about the airports? When it started MACQUARIE was just a small caen management trust. Then he got its hands on our airports. Now it is a large finance company that seeks out supernormal profits.
Privatisation has been a disaster. Like all disasters it will leaves scars. And it will take a long time to repair the damage to our, once, extensive social overhead capital.
I agree that the inflation target ought to be consciously chosen to maximize real income growth, not pulled out of a hat. How much that is depends on the size and frequency of shocks (than require changes in relative prices to allow markets to clear) and the extent of rigidities that prevent prices from adjusting downward, especially property leases, mortgage payments, and some wages. If we are getting lots of non-clearing markets at a given target, that to me says we need a higher target.
OTOH I do not see the ZLB as an issue. QE plus an unequivocal commitment to at least maintaining inflation at target (something the US Fed failed to do during 2008-20) is highly likely to succeed. It takes a bold bear to bet against a central bank’s ability to create inflation if it tries. And the argument that the _target_ needs to be higher because in fact a central bank failed to prevent inflation from falling _below target_, seems odd, indeed.
I think we also need to distinguish an average target (averaged around month-to-month noise) from temporarily higher inflation needed to allow extraordinarily large relate price changes required by an extraordinarily large shock like COVID/Putin or the 2008 financial crisis. In other words, a clever central bank will be doing _Flexible_ Average Inflation Targeting, not (backward looking) Average Inflation Targeting (and even less treating a supposed target asymmetrically as a ceiling).
I always wondered (well, ever since I have wondered about these things) why we had to get inflation down to 3%. What are the advantages of an inherently low inflation rate, over say one at 4 or 5%? Sure, when inflation is higher, you have wages and prices playing catch up, but so what? That's only a bit of mild disruption to the economy, surely. As long as inflation doesn't spiral out of control - is that the only real fear?
Or is it simply as you say, lower interest rates are good because they bolster the RBA's reputation - for keeping interest rates low?
Inflation reduces the value of any "store of value" that is denominated in currency. https://www.investopedia.com/terms/s/storeofvalue.asp
Two problems:
[1] Since Reagan, the rich and the corporations have had their tax burden dramatically reduced and will fight tooth and nail to keep it that way, so govt revenue has been kneecapped.
[2] Revenue raising assets were sold to the private sector and there will be legal difficulties for the govt to re-aquire them except at great cost (and the govt hasn't got the revenue base from which to buy them back.
....
The buccaneer capitalists set this up as a perfect way to destroy what they saw as "socialism". More accurately, they created a massive corporate welfare scheme. Undoing this will be nigh on impossible. This is the Ponzi Scheme Australia has bought shares in. Good luck.
It seems that while most economists favour central banks raising the inflation target they fear that this will threaten the credibility of the central bank thereby destabilising the private sector.
The vast majority of Australia's mineral wealth should be nationalised and the profits used to fund public services. Multi-billionaire mining magnates should not exist.
Look what happened to Norway. 79% tax on oil and gas. And the have well over a trillion $$ USD sovereign wealth fund for country of 5 million.
What do gas corporations pay in Australian tax ? Zero
Your link to comments on Conservative Professors led me here John.
Medieval Religious Universties were undoubtedly conservative but changed as their knowledge was challenged by science in particular.
Correlation between income & Republicans not unexpected but it’s interesting in Australia that Greens supporters have the highest education & income & aren’t exactly conservative 😉
What is neoliberalism? Matt Yglesias argues that most of its critics aren't clear what they mean by it: https://www.slowboring.com/p/what-was-neoliberalism?utm_source=post-email-title&publication_id=159185&post_id=146408444&utm_campaign=email-post-title&isFreemail=false&r=15fd0l&triedRedirect=true&utm_medium=email
The privatisation of airports made small aircraft companies more difficult to sustain. With major airlines dominating the best airport facilities, smaller regional airlines are pushed out. They will never prosper until they are given a fair go at airports.
Listening to Treasurer Chalmers today as he explained the National Account figures, stirred up a memory from the 1990s. For those too young to remember back over thirty years of macroeconomic management, the 1990s began with the “recession we had to have” under an RBA initiative sold hook line and sinker to the then Treasurer Paul Keating. The timing was awful, as Australia’s own recession was closely followed by a global recession, By 1996 Australia’s unemployment rate was in the double digits. The now Prime Minister Keating’s government was voted out of office. Today you could hear the wheels of this memory working on Treasurer Chalmers mind as he hegel his bets on backing the RBA’s tough stance. He knows that his governments, and his own, future is on the line. If the RBA succeeds in driving up unemployment, it won’t be the Governor of the RBA who will have a new job handed to them some time next year. Treasurer Chalmers is scared that a global recession may arrive before the next election. He may very well have to use his powers over the RBA if they try to raise interest rates again; and may even have to order them to lower rates. Political expediency will always win out over e economic theory.
It is also the agreed range by agreement between the government and RBA. It is not as if the government cannot move to increase the appropriate range for inflation targeting. The RBA is simply working within it agreed mandate with the tools it has.
There wa an observable trend back in 2006 of hiring preferences for top financial firms. Instead of concentrating just on economics and finance graduates, these financial firms went after top graduating arts students. I am not sure how it was that a honours degree in English literature was a useful degree for a finance industry career. But the finance firms were offering such graduates very large starting salaries. it’s reasonable to suppose that anyone would be mad not to at least give it a go. That may well explain the absence of conservative professors on arts faculties in the USA.
This has been a dog’s breakfast from day one. The loss of revenue from ownership of :Telecom ( now Telstra); the Commonwealth Bank; certain toll roads; airports; and electricity infrastructure has weakened, not strengthened , government budgets. Look at the Commonwealth Bank. It was sold at $7.60 per share. That was deemed to be its present asset value in the 1990s. Today just one Commonwealth Bank share is valued at over fifteen times that issue price value. Then there is Telstra. The mobile net set up across Australia was paid for with government money. Then a virtual monopoly was handed over to TELECOM as a privatised company. Even today this gives Telstra market dominance. And what about the airports? When it started MACQUARIE was just a small caen management trust. Then he got its hands on our airports. Now it is a large finance company that seeks out supernormal profits.
Privatisation has been a disaster. Like all disasters it will leaves scars. And it will take a long time to repair the damage to our, once, extensive social overhead capital.
I agree that the inflation target ought to be consciously chosen to maximize real income growth, not pulled out of a hat. How much that is depends on the size and frequency of shocks (than require changes in relative prices to allow markets to clear) and the extent of rigidities that prevent prices from adjusting downward, especially property leases, mortgage payments, and some wages. If we are getting lots of non-clearing markets at a given target, that to me says we need a higher target.
OTOH I do not see the ZLB as an issue. QE plus an unequivocal commitment to at least maintaining inflation at target (something the US Fed failed to do during 2008-20) is highly likely to succeed. It takes a bold bear to bet against a central bank’s ability to create inflation if it tries. And the argument that the _target_ needs to be higher because in fact a central bank failed to prevent inflation from falling _below target_, seems odd, indeed.
I think we also need to distinguish an average target (averaged around month-to-month noise) from temporarily higher inflation needed to allow extraordinarily large relate price changes required by an extraordinarily large shock like COVID/Putin or the 2008 financial crisis. In other words, a clever central bank will be doing _Flexible_ Average Inflation Targeting, not (backward looking) Average Inflation Targeting (and even less treating a supposed target asymmetrically as a ceiling).