No. This is not Spartacus’ play on the Travelling Wilbury’s song. But ISHO, this reads better with the Wilbury’s in the background.
It’s not often that the subject of monetary policy and the role of central banks is discussed on the Cat. But the role that central bankers play in our lives is sometimes greater than that played by out political overlords. But unlike when our political overlords take money out of one group’s pockets and put it into another’s, when central banks do it, it is very rarely discussed.
Central banks, and in the case of Australia, the RBA are a government owned and operated price fixing and market manipulation operation; operations in Australia that have (to Spartacus’ knowledge) never been investigated by the ACCC or ASIC. And the prices they fix flow through the economy like a union official chasing a kickback on a construction site – fast and everywhere.
Central banks manipulate and fix the price of money, interest rates, which then impacts the price of assets, real and financial. This then washes its way into prices everywhere. Everything else equal, a cut to interest rates increases the value of property which needs to be factored into the cost of producing widgets which then needs to be factored into the cost of selling widgets.
And much like the way that the tax system takes from one group of people the government think don’t need as much and gives to another group the government thinks is more worthy, central banks take from savers and give it to borrowers.
But the big difference between the government and the central bank, at least in Australia, is that citizens have an occasional vote and can change the government. You can’t really do that with the RBA leadership. And yes Spartacus does know that the RBA is also government, but because of the “independence” of the RBA, this is economically and politically difficult and poisonous.
In the mean time, Australia has an unelected and unaccountable neo-clergy of econocrats deciding who is worthy and who is not. Talk about the deep administrative state.
And don’t forget that this independent RBA has meddled in elections and public policy debates well outside its mandate; something that would be utterly intolerable of any other public sector agency.
Deep within the bowels of the RBA is a particular model and economic framework that, according to the RBA itself, provides an intellectual framework for the analysis of monetary policy. And not just Australian monetary policy. This model also infects the analysis and setting of monetary policy in other countries including US monetary policy.
And what is this intellectual framework you may ask? It is known as the Phillips Curve and was invented/discovered by an economist over the dutch; New Zealander William Phillips. The nub of this framework is that:
inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.
More importantly, it provides the rationale for economic meddlers to meddle in the economy. Reduce interest rates – stimulate the economy – reduce unemployment. But is asset price inflation really economic growth? And does this theory really hold given the Phillips Curve relationship was disproved by the 1970s stagflation and the global financial crisis? But eh. Once a Department of Economic Meddling has been established, they are unlikely to present arguments for their own redundancy or a limitation on the powers they like to exercise.
In the mean time though, through interest rate manipulation, central banks quietly create asset price bubbles and then point fingers anywhere and everywhere else when these bubbles burst.
And in doing so, they also transfer wealth from people without assets to people with assets; you know in part explaining the acceleration in high net worth people’s wealth. But you see, the wealth effect economic clap trap is easy to explain.
Now even though Spartacus does not accept the notion that income inequality in itself is a bad thing, perhaps before populists, that includes el-Presidente, World’s Greatest Treasurer and Social Justiceman, the Hon. Wayne Swan start blaming “business” and tax and the vibe, perhaps he should look at the agency he had direct oversight over including the appointment of many of its current board members. Yes that Mecca in Martin Place, the Princes of Printing money, the Reserve Bank of Australia.
If anyone is to blame for income inequality in Australia, something that does not matter but still gets everyone excited envious, eyes should be cast at Kiwi and Justiceman.