Reserve Bank interest rate hikes and the “new” neolaboralism

Yesterday, Australia’s Reserve Bank governor, announced yet another significant interest rate hike of .25 points to 3.35% and forecast more to come, all in the quest to defeat inflation. He followed with the usual explanation a few hours later.

This morning, on ABC Radio National, the Labor government Treasurer in effect endorsed this and at the same time registered his concern about the impact. He also reminded everyone that he would soon have the report on the review of the Bank that he put in place last year. He said he wanted to make the RBA “a better version of itself”. We return to that further on.

To understand the RBA decisions and what the Labor government is up to, it's best we remember and take serious note of the RBA’s statutory charter. It says:

“It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:

a. the stability of the currency of Australia;

b. the maintenance of full employment in Australia; and

c. the economic prosperity and welfare of the people of Australia.”

Ideology trumps the law: profits the real issue

In other words, fighting inflation first and above all with interest rates is not a legal requirement that the Bank must follow. Rather, it's an ideology – neoliberalism – that says that is how the capitalist economy should be made to work for its own continuity. The irony is obviousHigh-income: a dismal situation requires “more dismal” for the majority while the minority are protected.

The protection of powerful capitalists includes the gap between how quickly and how much the big and secondary banks instal the increase in their lending rate and, their borrowing rate. That amounts to a transfer of wealth from wage earners to finance capital in the first instance that can flow to other parts of the capitalist class. High income savers, already protected through the tax system, can cope with that (even when they lose) but middle and lower-income savers get more of the “dismal”. That includes those middle and higher-wage earners who have paid off a lot of their mortgage and also have a ”savings buffer”.

The gap is where finance sector profit-taking starts from, even though they do not produce any of the new wealth they are taking.

It’s also worth noting what the Governor and his supporting statement say about profits. They say nothing. They are not a thing. The evidence that the scale of profit-taking has lifted inflation is not a thing. That’s neoliberal capitalist management at work. Don’t let anyone get into the profit question. The opposite is the case for wages and, in its own words, the RBA will be watching very closely what happens in wages bargaining, and especially the Annual Wage Review.

In effect, they are telling the government and the Fair Work Commission: don’t let wages “get moving” very much, especially not close to or more than the real cost of living. No catch-up for the people.

The Chart Pack released along with the announcement and the statement mentions profits just once and, therefore, somewhat superficially. It suggests that profits relative to GDP have gone back to about “normal” after the extreme highs in recent years. That’s what they don’t like because they believe the system’s continuity will depend on it. There is some truth to that – when the system is in trouble a higher rate of exploitation of workers and nature is a big deal in rescuing it.

It’s clear also that the drift back into higher unemployment is a good thing because it means downward pressure on wages.

New Labor's "better version"

This brings us back to the Labor government’s management of this dimension of the economy. There are 3 main points.

First, the current policy is to stand for and continue with the independence of the Reserve Bank. The Treasurer’s current “Review” will not be changing that.

Second, there is the Treasurer’s comfort that government fiscal policy – taxing and spending – should align itself to the Reserve Bank’s monetary policy, not in its statutory charter.

In other words, he likes the idea that an unelected Reserve Bank Board can impose economic management decisions on an elected government, surely a fundamental flaw in parliamentary democracy as we know it.

Third, we return to the Treasurer’s emphasis this morning that his Review aims to make the Reserve Bank a “better version of itself”. The essence of the Reserve Bank is that it is an anti-democratic powerhouse practising its own version of the “neoliberal” religion against the intent of its statutory duty to care for “the people”.

That’s the “itself” that the Treasurer wants to improve. Not change. Neolaboralism can do neoliberalism better. That’s not good news for the working-class majority.

One of the big questions that remains: how long will ALP members and the unions affiliated with it put up with this? And, the rest of us?