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.