How did anyone ever get on with AFR journalism when it was wrong and a day late?
Now at least it is wrong on the same day.
Economist Warwick McKibbin left the bank in 1989 because he disagreed with its high interest rates.
But today, the Australian National University economics professor, who later returned as an RBA board member between 2001 and 2011, thinks the RBA has been too timid raising rates.
“Rates should obviously be higher than they are now because underlying inflation is too high at 3.5 per cent,” McKibbin says. “There is excess demand, enormous government spending and no productivity policies.”
And? Wages are falling fast, and inflation is following. This will keep happening because the immigration-led economy supplies its own labour.
Besides, the argument is backwards. Fiscal is stronger than it would be because the government is trying to offset RBA-squashed growth.
More.
McKibbin says the RBA cash rate should have risen closer to 5 per cent. Australia’s cash rate of 4.35 per cent peaked lower than central banks in New Zealand, Canada, the United States and United Kingdom.
Former Hawke Labor government adviser Ross Garnaut, in his new book Let’s Tax Carbon, suggests that the NAIRU is no higher than 3.5 per cent and argues that between 1946 and 1975 unemployment averaged below 2 per cent.
McKibbin is wrong. The cash rate was high enough. And higher than all other countries in real terms owing to our extreme household debt. That’s why we have a crashed private sector now.
Garnaut is right. NAIRU is lower than anyone imagines because, again, the immigration-led economy does not do wage growth.
All this coulda, woulda, shoulda stuff is so backward-looking that we might as well be discussing the dinosaurs.
Typical AFR.
