Categorized Directory

Main Menu

  • Home
  • Search directory
  • Web crawlers
  • Collect data
  • Indexation
  • Bankroll

Categorized Directory

Header Banner

Categorized Directory

  • Home
  • Search directory
  • Web crawlers
  • Collect data
  • Indexation
  • Bankroll
Indexation
Home›Indexation›Australia’s economy is too hot like it was in the 1970s

Australia’s economy is too hot like it was in the 1970s

By Ed Robertson
June 16, 2022
0
0

The decade and more of cheap money, big fiscal stimulus, dysfunctional climate and energy policies, and lack of investment in productivity has finally caught up.

Energy prices are soaring. Amazingly, a nation richly endowed with coal, gas, uranium used for nuclear power and renewables such as wind and solar is struggling to keep the lights on and has suspended the national electricity market.

It’s an unlucky combination of cold weather, coal-fired power disruptions and sanctions on gas-rich Russia, capped by a failure of carbon pricing to provide certainty for investments in electricity generation and transmission. ‘energy.

too much stimulation

Inflation is out of control and the Governor of the Reserve Bank of Australia, Philip Lowe, estimates that it will reach 7%.

The war involving energy-rich Russia and China’s pandemic lockdowns are the main causes of the price pressures.

But too much stimulus from central banks and governments has gone on too long.

Lowe admits consumer spending is too strong and needs to be curbed by higher borrowing costs.

Central banks are belatedly realizing that they need to take the punch bowl out of the party, as evidenced by the US Federal Reserve raising the interest rate by 0.75 percentage points.

The RBA will likely follow with another 0.5 percentage point hike in July and will need to continue higher thereafter.

The cost of capital will continue to rise for governments, businesses and households – moving through stock markets, pension yields and house prices.

The new Albanian government must join the fight against inflation, to avoid the crisis of stagflation of the 1970s which required years of painful tightening of interest rates.

Overspending

The answer now surely lies in reining in the overspending built into the budget, combined with the repetition of a program of economic reforms à la Bob Hawke and Paul Keating of the 1980s to boost productivity and real wages.

With $18 billion in campaign spending commitments in areas such as childcare, health, education and green energy, the new Labor government will have to cut other spending.

The government may also need to consider removing tax breaks, without hampering incentives for workers to work and businesses to invest, as Treasury Secretary Steven Kennedy has suggested.

The Treasury and the RBA are on a mission to test the achievement of the lofty economic and social goal of full employment.

But they are testing the limits of the inflection point of the Phillips curve, which suggests that at a certain level of unemployment, wages will soar sharply.

Surprisingly, 60,600 additional jobs were created in May. More people were drawn into the job market, as the participation rate reached a record 66.7%.

The combined rate of unemployment and underemployment is the lowest since 1982.

We are flirting with full employment, but that will only be seen in the rear view mirror, when wages rise significantly.

Built-in expectations

The steep 5.2% increase in the Fair Work Commission’s minimum wage and at least 4.6% increase for 2.7 million industry-rewarded workers brings the inflection point closer.

The risk now is that higher wages and inflation expectations become entrenched in the psychology of Australians.

The indexation of salaries for civil servants and union members in the 1970s under the Whitlam Labor government reversed the oil price shock, ensuring dire stagflation.

Inflation soared, recession ensued, and rising unemployment lasted for decades.

It took us 48 years to bring unemployment below 4%.

Today, a more flexible labor market and economy, a floating Australian dollar and earlier central bank rate hikes will help avoid the worst of the 1970s.

But the Albanian government and trade unions must also drop their false pretense that workers’ real wages cannot fall.

If inflation reaches 7%, the economy will not be able to cope with a wage increase of more than 7% for minimum wage and paid workers.

It would be economic suicide.

Otherwise, Lowe will have to repeat the harsh medicine of former US Fed Chairman Paul Volcker in the 1980s to crush inflation and remove heat from the economy via crushing rate hikes.

Hopefully we can avoid the feeling of deja vu.

Related posts:

  1. Circular debt – myth and reality
  2. USS and UK accused of failing to respond clearly to defined benefit reduction proposals
  3. Electric vehicle company Rivian could ask for a valuation of $ 70 billion when it goes public – Bloomberg News
  4. The repayment rate of the 1st tranche of sovereign bonds on gold is 80% higher than the issue price

Categories

  • Bankroll
  • Collect data
  • Indexation
  • Search directory
  • Web crawlers

Recent Posts

  • NOAA research vessel collects data for boating safety and coral preservation | New
  • Compliance Alert: IRS Releases Affordability Percentage Adjustment for 2023 | woodruff sawyer
  • Yoast SEO 19.5 update causes fatal errors
  • SEO for Animated GIFs – Practical Ecommerce
  • VSD and Department of Statistics collect data on chicken supply

Archives

  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • Privacy Policy
  • Terms and Conditions