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John Haly's avatar

“The recent review of the Reserve Bank acknowledged the challenges to this orthodoxy but didn’t consider them.“

I and a number of colleagues coordinated a write-in to the RBA review that year, all taking different aspects of the RBA's economic and organisational dysfunction into account. However, the reviewers assigned by our Treasurer, Jim Chalmers, ignored all our work.

I know the environment as I used to work for the Reserve Bank back in 2001, reversing the outsourcing of the computer systems that manage our nation’s Exchange Settlement Accounts (ESA) System for the private banking reserves. So, I have worked for the Reserve Bank, and I will say that it was one of the better workplaces I have worked in, certainly at the technical level. The immediate IT management in that organisation was superb, and it was a pleasure to work there. Still, the Financial Senior Management Board and their devotion to neoclassical (and neoliberal) ideology leave much to be desired. I just wanted to clarify the distinction, so nobody thinks I am a disgruntled ex-employee. It was a great job, and I regret not taking up their permanent employment offer. Still, I was hoping to get married (I hadn’t proposed at the time I left, but knew I had found the one — and did so before taking up the next job), and the wage drop to take on permanent work from contracting was significant. Personal guff aside, I spent a good 14 months in that job, and we successfully reversed the previous outsourcing, which involved creating a reverse-engineered alternate system for the nation’s banking reserve system, which at the time handled between $9B to $16B worth of transactions a day. I wrote the operational support and security interface systems for internal staff on the Alpha network we rebuilt in-house.

After I realised our Treasurer, Jim Chalmers, was not paying attention to our collaboratives' multiple letters, I published mine in AIMN. This was noted by John Herman (editor of ERA), who asked if he could republish it in ERA. After some peer review assessment and the usual requests for expanding explanations, rewording, etc. (which only made it larger), they published it in two parts.

It explains how monetary policy “Changes in interest rates can have a reverse effect on inflation.” https://era.org.au/monetary-and-fiscal-policy-frameworks-for-australia-part-1/ Part 2 describes a little more about how money is created (just change the “1” to “2” on that URL to read part 2). It also is a tad critical about the Board’s makeup and their devotion to neoclassical ideology, which has no basis in the reality of how interest rate can possibly affect cost-push inflation (or, for that matter, measure unemployment - but that is another story).

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Robertiton's avatar

Normally, when I find myself disagreeing with you, John, it means I have to check my logic and assumptions to see where I went wrong, but in this case I might actually disagree.

The simplest problem I have with your analysis is you're saying the distributional effects of a policy are an argument against pursuing it. That's never the case, because distributional effects can always be corrected by simply taking money from the rich and giving it to the poor. If high interest rates favour the rich over the poor, just tax the rich and give more to the poor. By making the RBA responsible for financial stability and equality, you're setting them an impossible task.

My second issue relates to time frames - the current crisis is a result of decades of policy failure and would take decades to unwind (if anyone were serious about unwinding it). If we fall into recession it will be the result of fiscal and policy irresponsibility, not the RBA being a percentage point or two off the mark. Even the blame for the ludicrously low interest rates of a few years ago falls mainly to Coalition governments unwilling to implement appropriate fiscal policy.

Finally, I think moderate interest rates are a good thing. The fact asset prices are so absurdly high is because of the abundance of cheap money over the last three decades. We can't keep accelerating out of trouble without ever touching the brake. Maybe there are better tools for clawing back that excess cash, but they don't belong to the RBA. They're in the hands of the government and the Coalition long ago lost interest in doing the hard stuff and now Labor has got sick of being the responsible parent, so it's left to the RBA - the primary school teacher in this analogy.

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