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Another Keynesian at the RBA

September 23, 2016

So what’s the new RBA governor like? He is standard issue Keynesian, that’s what he’s like, which means he will never have a clue what’s going on. This is so depressing: Reserve Bank governor Philip Lowe urges government to invest in infrastructure. The opening paras:

Incoming Reserve Bank chief Philip Lowe has appealed to the Turnbull government to help him out with economic management by borrowing big for infrastructure, saying there’s only so much that further cuts in interest rates can do.

In what amounted to a plea to the Prime Minister and Treasurer to take advantage of near-record low interest rates and borrow now that the Reserve Bank’s cash rate was close to zero at 1.5 per cent, he told a parliamentary hearing that monetary policy is “not working as effectively as it might have”.

“One response is to keep doing more of it in the hope that it finally works, he said. “My judgment is that that has not been particularly useful.

“Another option is for some entity in the economy to use the low interest rates to increase its spending. The government could either use its balance sheet or its planning capacity to do infrastructure spending.”

Does he not know that we have already tried the public spending and that it didn’t work. We have also tried low interest rates, and that didn’t work either.

Only private sector spending, where a genuine profit and loss statement in involved, will generate recovery. How about cutting deficit-increasing expenditures and reducing the weight of business regulation? Having seen his first go at giving policy advice, I am not encouraged by what he will now do to rates. As for public infrastructure, right under the AFR story on the RBA, there was this: Communications Minister Mitch Fifield eases NBN charge concerns. Wherein we read:

Investors saw the first real impact of the high wholesale access charges on Tuesday after David Teoh’s TPG Telecom warned that its margins will be cut as more users switch to the NBN under the current pricing model. TPG shares have been savaged since, dropping 24.5 per cent since Tuesday, while shares in Vocus Communications have dropped 10.4 per cent.

Mr Fifield said that “NBN is acutely aware of this issue.” The NBN is under increasing pressure over the charges as telco entrepreneurs warn that the industry may reach a point where some companies may go broke.

NBN would not even exist except for the billions blown by both governments on this ridiculous project. It is now the white elephant in the room and is threatening to devastate the industry. This is government infrastructure at its finest, a perfect example, along with unusable desal plants, green energy projects, billion-dollar Myki cards and beyond the idiocies found across the globe, we in Victoria have billion dollar non-existing roads-to nowhere. Let me give you my favourite quote from Adam Smith.

[Governments] are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expence, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.”

Written in 1776 and with the words “always” and “without any exception” found in a quote from the normally cautious and careful Dr Smith. No one who has ever read that passage in all the years since it was written has ever seen a government that could be described as in any way different from what was described. It is a passage our new RBA Governor needs to read and takes to heart, while he goes back and has a look at Wicksell at the same time. Haven’t these people ever heard of the private sector?

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