RBA governor’s advice to business

The Governor of the Reserve Bank, Philip Lowe, has been at the RBA since 1980. That’s 40 years of employment at one institution – a commendable achievement of loyalty.

Yet he is now straying to advising business to increase wages. Not because there is productivity growth – which has been flat – but because he would like to see higher wages.

Now I’m sure that this well credentialed economist would know that wage increases which are not supported by labour productivity growth are likely to cause inflation pressures. You can’t just wish for higher wages because it sounds good.

He said that the “predominant mindset” in corporate Australia was that

… if profits can’t be increased by expanding or by raising prices, then it has to be achieved by lowering costs

This mindset can be helpful in making businesses more efficient, but it also has the effect of making wages and prices less responsive to economic conditions.

This coming from a person who has worked his entire career in the one institution that can print money.

I think business managers (at least when not engaged in the latest woke crusade) have a better idea of running their businesses than does Philip Lowe who should stick to his knitting. First he opines about fiscal policy (not the responsibility of the RBA) and now about how to run a business. Well go one Philip, resign from the RBA and set up a business and see how you go.

I suppose it must be getting a little boring at the RBA just holding the cash rate constant.

About Lucius Quinctius Cincinnatus

I'm a retired general who occasionally gets called back to save the republic before returning to my plough.
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47 Responses to RBA governor’s advice to business

  1. Cynic of A says:

    When one works at the same job – especially a government paid job – one accumulates a huge amount of experience.
    One also accumulates a huge amount of habitual thinking.
    Separating the two isn’t the strong point of Mr Lowe, who has been partly in control of interest rates at 20% and interest rates at 1% in my working lifetime.
    He didn’t get it right too many times, did he?
    I often wondered, when I was paying 18%, how high can it go?
    I now wonder, when I am being paid 1%, how low can it go?
    Mr Lowe – and his cohorts – knows the answers to neither question.
    Something I do know, is that’s it’s easy to make any decisions, when you yourself are totally unaffected by those decisions.

  2. mh says:

    Yet he is now straying to advising business to increase wages.

    Why would a business voluntarily increase it’s expenses?
    What’s the return for this investment?

  3. E.J. says:

    So..Higher wages= cost to Business
    Higher Super rates= cost to Business
    Higher Compliance’s & Red tapes= cost to Business
    Pandemic Lock-downs = cost to Business= OUT OF BUSINESS
    Meanwhile all the Public Service employees & its Corporate Minions continue to receive their Guaranteed Income. I’m sure the last 16 Months of their Income nest has been nicely topped up..no losses, no cost to their livelihoods or life!

    These people have NO effing Idea !

  4. Roger says:

    Now I’m sure that this well credentialed economist would know that wage increases which are not supported by labour productivity growth are likely to cause inflation pressures.

    Perhaps he’s just aiming to hit the RBA’s inflation target. 😆

  5. DaveR says:

    Lowe is clearly not reading the winds on international interest rates, and appears blind to the possibility of the emergence of a strong inflation jump, fueled by western governments’ debt-funded stimulus hand outs. He appears to be pushing a line rather than reading the markets. To now start to comment on business operational matters is adding to his problems. Australia needs a completely objective and independent RBA Governor. Time for Lowe to move on.

  6. Rohan says:

    Tell him there’s plenty of caffee’s up for grabs cheap in the Melburne CBD.

  7. Kneel says:

    “Tell him there’s plenty of caffee’s up for grabs cheap in the Melburne CBD.”

    Not only that, but should he buy and operate one, he can pay his employees as much as he wants – $1,000/hour, if he wants to. No-one will stop him from doing that – at least, not straight away. His bank manager might start bouncing his cheques, but he can keep going if he dares – unlike GovCo, his resources are not virtually unlimited.

  8. FlyingPigs says:

    He’s just providing cover for the national wage increase.

  9. duncanm says:

    This mindset can be helpful in making businesses more efficient, but it also has the effect of making wages and prices less responsive to economic conditions.

    strange – he doesn’t seem to be advocating for the lowering of wages in response to recent impacts on business.

    Wages can only responsive on the up-side?

  10. Strayan Drongo says:

    The creep through the institution’s is complete. Surely there are laws that limit what these morons are allowed to involve themselves, I’m so sick of unelected bureaucrats expanding their turf, when we had stronger institutions someone would have taken him out years ago.

  11. Strayan Drongo says:

    Why would a business voluntarily increase it’s expenses?

    Because they are competing for the best staff, and think that they can make a return on the investment through productivity increases or being able to achieve a higher sale price.

  12. Mango Man says:

    Wages are rising in any case. The absence of students and migrants is having the inevitable effect and only the lockdowns have masked the inevitable wage pressures. Right now the greatest single issue is in construction, which will only get worse as the big projects in every major city and lots of rural areas roll on.

  13. Texas Jack says:

    It’s a wonder he isn’t advising business on the scintillating benefits of gender diversity and how to create an inclusive work culture? Everyone else seems to be…

  14. Spurgeon Monkfish III says:

    he would like to see higher wages

    So Lowe’s of the same view as Silly McMenace and those destructive incompetent imbeciles at the FWC.

    Quelle surprise.

  15. Neil says:

    Apparently Philip Lowe has a salary of $1M/year which is obscene. How come all our govt and semi-govt workers earn a lot more money than their counterparts in similar organisations overseas??

    I am of the opinion that no-body in the Public Service or semi govt bodies which i think the Reserve Bank is should earn more than the Prime Minister

  16. Strayan Drongo says:

    I am of the opinion that no-body in the Public Service or semi govt bodies which i think the Reserve Bank is should earn more than the Prime Minister

    Hear hear.

  17. cuckoo says:

    Well go on Philip, resign from the RBA and set up a business and see how you go.

    If only he would. Then he would discover what failed US presidential candidate George McGovern did, the hard way.

  18. H B Bear says:

    I would think most people in business would do what they usually do with RBA advice – ignore it and go back to whatever this week’s crisis is.

  19. Terry says:

    Of course, there is a far easier way to give all employees and businesses (the whole economy) an effective net pay rise without further burdening the businesses that have already shouldered too much of the load deliberately foisted upon them by the deadweight of government.

    Any short-term revenue loss resulting from tax cuts could (and should) be offset by reductions in public expenditure – the obvious place to start would be remuneration reductions for public servants, across the board; those people that have so far contributed zilch to the “we’re all in this together” plan and in many ways made the situation far worse (economically and morally).

    Step 1: Reduction of all Superannuation payments to the Super Guarantee rates that applies to everyone else.
    Step 2: 10% immediate pay cut for those up to the top tax bracket and another -2.5% for the next four years.
    Step 3: 50% further reduction for those above the top tax bracket.

    That should kick it off – those unhappy a welcome to pursue “fairer” remuneration in the private sector, or even start their own businesses (they could even give themselves a pay rise, as this coddled public servant buffoon suggests).

  20. mh says:

    Strayan Drongo says:
    June 17, 2021 at 12:55 pm
    Why would a business voluntarily increase it’s expenses?

    Because they are competing for the best staff, and think that they can make a return on the investment through productivity increases or being able to achieve a higher sale price.

    Quinny highlights the problem with Lowe

    You can’t just wish for higher wages because it sounds good.

  21. Terry says:

    ‘Cynic of A says:
    June 17, 2021 at 12:03 pm
    When one works at the same job – especially a government-paid job – one accumulates a huge amount of experience.’

    “Experience” is of itself not useful (especially when used as a euphemism for tenure).

    One must learn, practice, apply and improve, not to mention add value and be effective at what you are meant to be achieving.

    It is simply not good enough to occupy a position for a length of time (and then call it “experience”).

  22. John A says:

    This coming from a person who has worked his entire career in the one institution that can print money.

    Where he has never had to make sure next week’s wages can be paid out of the business proceeds of the current week.

  23. Rob MW says:

    Now I’m sure that this well credentialed economist would know that wage increases which are not supported by labour productivity growth are likely to cause inflation pressures. You can’t just wish for higher wages because it sounds good.

    Now I’m sure that this well credentialed economist would know that wage increases which are not supported by labour productivity growth (or the international competitive price volatility of perishable (soft) and hard commodities in the primary production sector which are domestically priced at and subject to export parity) are likely to cause inflation pressures and or capacity to pay under a centralized wage fixing system. You can’t just wish for higher wages because it sounds good.

    Fixed it !

  24. BalancedObservation2 says:

    It’s also worth noting that the Reserve Bank is an unelected body – with a significant degree of legal independence from the government but with arguably an even higher degree of political independence from the government as a result of the convention which has built up around its operations and the operations generally of central banks.

    So that tends to make it less publicly accountable for its actions.

    The argument for that independence is that it somehow gives the Reserve Bank more credibility when it makes monetary policy decisions – than if they were made by the incumbent government. They are less likely for example to be made in a biased way at a time in the electoral cycle favourable for the incumbent government.

    The argument also relates to the question of inflation in particular. That governments can be trusted less with controlling it through monetary policy that central banks can be. The spectacle of German clerks taking their cash pay home in wheel barrows comes to mind. Inflation control has been a key justification for the independence of central banks like the RBA.

    But inflation for a long time now has been far less of a problem that it has been. So a key argument for independence has eroded markedly.

    The RBA should be under more scrutiny in the context of recent arguments for if to intervene in the housing market. It has neither the expertise nor the authority under its charter to intervene there. That’s of even greater concern that it giving what appears to be ill-informed gratuitous advice to business on wages.

    If there are economic welfare arguments that wages are too low for people to manage adequately from a welfare perspective that is a responsibility of the government address – for example through the welfare system. It’s not the responsibility of employers. In fact as this article implies it’s probably counter productive for employers to lift wages generally in the absence of productivity gains.

  25. BalancedObservation2 says:

    What Philip Lowe is advocating could well be illegal. Not for him to be making the suggestion but for employers to follow it.

    Lifting the wages and hence costs to the business to address not for some direct interest of the company but for some perceived general economic welfare problem with low incomes would seem to breach a board’s legal responsibility to its shareholders to maximize profits and long term viability of the business.

  26. Terry says:

    ‘It’s not the responsibility of employers.’

    Indeed. It is not the responsibility of a business to be an employer at all.

    It is the responsibility of a business to provide a good or service at a profit (if it can) to the mutual benefit of its owner (shareholder/s) and its customers.

    That successful businesses also generally provide employment as a necessary input to achieving their “responsibility” is simply a happy by-product; one which benefits the economy and society in general.

    Governments should be falling over themselves to get out of the way of this process as much as possible.

  27. Strayan Drongo says:

    BalancedObservation you’re spot on, but many votes for our public companies are now superannuation funds who would be happy with pay rises in leu of increased profits. The deeper you go the more corrupted our system has become.

  28. BalancedObservation2 says:

    Strayan Drongo you’ve touched on a really big sleeper issue for our economy and our society – absolutely gigantic super funds controlled or influenced by in many cases ex union bosses.

    They have immense power in the market to influence of even control businesses.

    Members of the industry super funds now for example control their own Daily Mail newspaper in Australia. I think we are only now starting to see their influence. There’s a lot more to come.

    Of course such well cashed up organisations can afford big advertising budgets to promote themselves as wonderfully caring organizations. Their advertisements are in TV often. Let’s hope all the good claims about them in the adverts are true, because if they’re not, we have a lot to worry about.

    Here’s a recent article about one of them which looks on the surface quite a worry. A fund member left her super to her mother but her wishes appear, according to the article, to be overridden by the industry super fund involved. Here’s the link to the article:

    https://www.smh.com.au/national/victoria/magistrate-who-had-relationship-with-young-court-clerk-wins-her-super-benefit-20210616-p581hg.html

  29. Terry says:

    ‘BalancedObservation2 says:
    June 17, 2021 at 2:47 pm’

    It is the Trustee, at its discretion (not the beneficiary), that gets to legally decide who gets the proceeds of the Super Fund.

    To avoid this, you are required to lodge a “binding nomination”, which legally obligates the Trustee to distribute the Fund proceeds to your nominated beneficiaries. BUT, you have to renew this nomination every three years, in writing (the default is, they get to decide).

    To describe the current establishment as the Super-Industrial-Complex is not hyperbole. And it is not surprising that the Union Cartels have their tentacles all over it.

    Whoever designed the current Super System should be hung in the public square, with no limit on the numbers convicted. I’ll bring the crows.

  30. Paul says:

    Or like most profit oriented globullists, take a leaf out Dictator Dan’s book and get the job done in communist China using Uighur slave Labor.
    Far more profitable, comrades.
    No one in the marxist West really cares any more.

  31. m0nty says:

    Saul Eslake is on Philip Lowe’s side in this one.

  32. Jock says:

    Funny how he didnt bemoan the fact that Australians have comparably high wages and salaries. He does know why any business that could outsourced to the Evil CCP many years ago?

    I see it as a desperate move to increase inflation. Inflation is needed to reduce debt values.

    You should all remember that Lowe has nearly 1400 employees to assist him in making these statements. What do they all do? Most would be Grads and on a good wicket.

  33. BalancedObservation2 says:

    Wow. Thanks Terry for that valuable information. I’ve taken note of it. I hope others do too. Of course it certainly doesn’t make me feel any better.

  34. brian boru says:

    Is there any truth in the rumour that they don’t have chook raffles in Canberra pubs because no one has enough smarts to run one?

  35. BalancedObservation2 says:

    Not true Mr Boru. They don’t run chook raffles in Canberra because public servants are so well healed there, the prizes aren’t big enough to appeal.

  36. BalancedObservation2 says:

    I should have said well heeled.

  37. mh says:

    With government in Australia shutting down production on a whim since March 2020, maybe they should do a full takeover.

  38. JC says:

    Lowe earns a million plus bucks a year and since his appointment the douchebag has not attained the inflation target in a single year. That’s his objective. Rather than ensuring nominal GDP doesn’t take a deep dive through monetary policy he was enticing the government to increase government spending. He’s a complete failure and the quicker they fire this fuck’s arse the better. He’s a Krugman disciple having done his phd under the beard (Krugman). Krugman knows nothing about monetary policy and Lowe knows even less. Fire him and fire him now. Moreover, he should not be discussing wage policy. Get rid of him., FFS!

  39. BalancedObservation2 says:

    Monty

    (June 17, 2021 at 3:06 pm)

    Not very convincing arguments from Saul Eslake.

    He doesn’t actually make a case for why it’s the responsibility of business to lift wages. He actually makes a case for higher household spending. That is not in itself a case for higher wages to be paid by private employers.

    If higher household spending is warranted from an overall economic point of view to boost demand , and he could be right there, the responsibility to do that should be on the government as I said earlier, for example through the welfare system. Not the responsibility of private employers.

    The link between an individual employer lifting wages and any indirect demand benefit flowing to that employer’s company is far too tenuous. And it would involve labour intensive companies making a bigger contribution to overall economic welfare than capital intensive companies. That would be inequitable.

    If it’s anyone’s responsibility it’s the responsibility of government.

  40. BalancedObservation2 says:

    Lowe’s and Eslake’s suggestion gets messier and more problematic the more you think it through.

    It would also have a dubious influence on productivity because it would make labour comparatively less cost competitive against capital equipment – not because labour had become comparatively less productive but because there was in effect a new added cost on labour in order to boost overall household demand to help the economy.

    It would distort cost signals which help determine the most productive balance between labour undertaking a role or having that role mechanised. It would falsely skew that decision.

    Also with any percentage lift in wages most money would go on an individual basis to higher paid employees who tend to spend less and save more than those on lower incomes. That’s not a really big deal but it points to an inefficiency in the policy. Of course if employers took a welfare approach to whom they gave wage rises to and gave them to mainly less well paid employers that particular inefficiency would be overcome. But it would start distorting wage differentials – being guided by the impact on the economy not just on productivity factors.

    I can think of more even adverse implications of such a policy. It’s a very messy ineffective approach which has not been thought through well enough. Its impact could be quite damaging.

  41. Ed Case says:

    ***How come all our govt and semi-govt workers earn a lot more money than their counterparts in similar organisations overseas??***
    The Drones don’t.
    Australian Standards for Executives in the various branches of Government were snuck in by the Howard Government 25 years ago.
    That’s when the Salary Boom happened.

    Wages have been flat in Australia for 50 years.
    Yeah, business will take a hit until the effects of much higher wages wash thru, but businesses are failing every day anyway because the Economy is so flat.
    Why not give the High Wage Policies that bought us prosperity 60 yerars ago another run?

  42. Squirrel says:

    Interestingly, business leaders and lobbyists have a slightly different take on this issue – they all seem to think it would be a great idea for others to increase their employees’ wages but not for them to do so.

    Lowe could have his wish if he could persuade politicians to abandon their trade deals and resurrect the mighty Strayan tariff wall of earlier days and/or cut the “Big Australia” population Ponzi scheme – but the idea that we can have an open economy, with a high rate of immigration and sustainably increase wages from an already high base in the private sector is complete crap.

  43. m0nty says:

    If it’s anyone’s responsibility it’s the responsibility of government.

    Agreed, but I guess you have to do these things without business arcing up, so you need some buy in from employers. Perhaps a new Accord, to fix the problems of the last one?

  44. BalancedObservation2 says:

    Monty

    Of course The Accord restricted wage growth. Understandably easier to get employers to help with that compared with increasing wage growth.

    Although pretty widely acclaimed The Accord had a negative effect by flattening wage differentials which probably accounted for skilled trades labour shortages down the line. Why do years as an apprentice when you could be working in full pay – only to wind up on money not much better than a labourer?

    However there’s certainly a role for business. Business should favour more locally produced inputs when there’s some doubt about reliable continuity of supply from overseas, especially in critical areas. That would be a sound business decision and it would boost local production and demand. The unreliable sources aren’t just restricted to the obvious. The EU has shown its unreliability with its failure to honour vaccine export contracts.

  45. Sue Harris says:

    Actually Terry & BalancedObservation2, I don’t think it’s guaranteed even in the case of binding nominations. When my father recently passed, the super company took a month before ruling the money could be distributed per his binding nominations (and there weren’t any other possible contenders). (and adding insult to injury by providing the wrong tax paperwork)

    And that doesn’t even touch the very nasty gotcha that the money from the super is taxable (albeit at a lower level itself, it pushes all the rest of your income into the higher brackets) whereas if it is distributed to the estate then via the will it is completely tax free.

    Of course, it’s easy for the RBA to opine about increasing wages, after all the public servants all get (generous) wage increases almost every year despite the private sector having pay freezes for many of the past few years due to the difficult economic situation they’ve left us all in.

  46. Kneel says:

    “…because public servants are so well healed there, the prizes aren’t big enough to appeal.”

    Oh – and here’s me thinking they don’t really want to “win” the bosses body when the head would still be in charge (and living in a bottle a la Futurama). What good yet another headless chook, eh?

  47. Kneel says:

    “If it’s anyone’s responsibility it’s the responsibility of government.”

    If they think that giving people more money will increase demand, then an option would be to decrease taxes – depending on where they are currently sitting, this may even lead to an increase in GovCo tax revenue. It costs business nothing extra, puts money in peoples pockets and is completely under direct GovCo control.

    But instead, they want someone else to do it. Figures.

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