EDITORIAL: Why the economy feels just like Groundhog Day
Don’t hold your breath for Treasurer Jim Chalmers to acknowledge the Government has been part of Australia’s economic problem.
Economics can be an intimidating topic.
Getting into the weeds on what drives the economy and interest rates can be a way to drive conversations into endless esoteric debate.
But current economic debate almost seems to contain elements of the craziness of Alice in Wonderland mixed in with the persistence of Groundhog Day.
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By continuing you agree to our Terms and Privacy Policy.To explain: It can send you down a rabbit hole where nothing makes sense. And it can happen over and over and over again.
The decision of the Reserve Bank of Australia to lift interest rates by another quarter of a percentage point to 4.1 per cent is such a mix.
There is much to unpack. For starters ponder this.
It seems the answer to what is likely to be a temporary supply-side inflation driver — soaring petrol prices and the prospective flow through to wider prices — is to whack us again with a rates increase.
Governments are always quick to claim credit for good news and quick to distance themselves from bad news.
So don’t hold your breath for Treasurer Jim Chalmers to acknowledge the Government has been part of the problem.
The truth is the inflation dragon was already starting to breath fire before the United States and Israel opened fire on Iran, which retaliated wildly, choking global oil supplies and sending prices spiralling.
It is commonly held that Government spending has been a key driver of that inflation revival — and by extension, rising interest rates.
As a reminder, Treasury’s Mid-Year Economic and Fiscal Outlook showed government spending at 26.9 per cent of gross domestic product, the highest level since 1986 outside of COVID. Budget deficits are expected for at least the next decade.
Saving just doesn’t seem to be part of the Government’s plan. When challenged about cost of living it parrots its record on spending. Tax cuts. Childcare subsidies. Free TAFE. More stuff for everyone. Help yourselves!
And so as the RBA struggles to wrestle inflation back into its target band of 2-3 per cent using its one lever — interest rates — the Government drives its side of the equation in the other direction by pumping more money into the economy.
Amid weak productivity growth, Government spending and offering handouts adds to demand.
And so as demand goes up, inflationary pressures grow, and as the cost of living goes up the cry goes out to the Government — help us!
At a wider level lies the issue of society’s increasing abrogation of personal responsibility.
Too often too many of us look first to government to save us if things go wrong.
And governments feel the political need to be seen to be doing that. Or at least trying to.
Fundamental change is needed at many levels.
Owning one’s own destiny is a start. And if that crazy notion takes hold then maybe governments won’t feel the need to throw money at anything and everything.
Meanwhile around we go. Deeper down the rabbit hole. Over and over again.
