My Blog

Blog

  • Inflation: A Primer

    Macroeconomics

    Inflation: A Primer

    by Greg Jericho

    Author

    Greg Jericho

    Chief Economist

    Media release



    The Reserve Bank needs to acknowledge the failures of the inflation target

    Over the past year, inflation has accelerated both in Australia and in most advanced economies, to rates much faster than have been observed for many years. Not unsurprisingly, this has caused much concern among people whose cost of living has risen abruptly. It has also created great challenges for policy makers: the risks of tackling higher inflation are high, given that the conventional response is to reduce aggregate demand, economic activity, and employment in order to “cool off” spending and thus reduce price pressures. This can mean that the “cure” can be worse than the “disease” – especially if, as occurred in the 1980s and 1990s, a recession follows efforts to constrain inflation.

    The Inflation Primer report investigates the history of Australian inflation and policy choices and provides a counter to the view that low inflation and the current inflation target is an unalloyed good. The period of inflation targeting has coincided with a strong shift of national income away from workers to company profits. It has also seen a tendency of the Reserve Bank to act decisively when inflation grows above the target and be much less active when, as we saw in the years prior to the pandemic, inflation slowed below the target range. The report also reveals that workers’ wages did not cause the current level of inflation  and yet workers are being urged to accept historic falls in real wages in order bring inflation back within the Reserve Bank target.

    Our review of the causes of current inflation points to some clear policy conclusions, that should be kept in mind by the government, the Reserve Bank, and other stakeholders as Australia continues to adjust to these new inflationary challenges:

    1. Inflation targeting in Australia since 1993 has not been “neutral”. Inflation missed the target from below, far more often than from above. Moreover, that period of inflation targeting (especially the sustained periods when inflation fell below the target) was associated with a massive transfer of income and economic power from workers to businesses. As the Commonwealth government undertakes its review of the RBA’s mandate and operations, these broad political-economic dimensions of monetary policy must be considered carefully. Monetary policy has not been a technocratic exercise, intended to maximise public welfare in a general sense. It clearly reflects and continues to reflect, value judgments and priorities placed on how the costs and benefits of inflation management are distributed across society.
    2. There is no evidence at all that a tight labour market, rising wages, or labour costs more generally have anything to do with the surge in inflation since the COVID pandemic. To the contrary, the evidence is clear that wages have had a dampening impact on inflation in this period. Recent inflation is clearly associated with a further expansion of business profits in Australia, to their highest share ever. Attacking inflation by aiming deliberately to increase unemployment and restrain wage growth even further, is a “blame-the-victim” policy that will only make workers pay even more for a problem they clearly did not create.
    3. The current surge of inflation reflects a “perfect storm” of unique factors (mostly global in nature) sparked by the COVID pandemic: which has been, after all, the most dramatic and painful event in the world economy since WWII. It should hardly be surprising that after-shocks from those events will be felt for some time, and the surge in global inflation is clearly one of them. Responding to this unique and unprecedented challenge by simply reciting a monetary playbook formulated in a fundamentally different era (the inflation of the 1970s) is not just inappropriate. It will, if pursued, lead to a painful and unnecessary global recession that will almost certainly engulf Australia, too.

    For all these reasons, the Reserve Bank and the Commonwealth government need to take a more careful, balanced look at the nature, causes, and consequences of the upsurge in inflation since the pandemic, before leaping to conclusions that are unjustified – and imposing policy responses that do more harm than good.



    Full report

    Share

  • The Reserve Bank needs to acknowledge the failures of the inflation target

    The Reserve Bank needs to acknowledge the failures of the inflation target

    Share

    A comprehensive review of inflation released today by the Australia Institute’s Centre for Future Work reveals that the inflation targeting in place since the early 1990s is not the neutral policy many assume it is. In that time inflation has missed the target more from below than above, and has coincided with a shift of national income away from workers to profits as wages have stagnated.

    One clear example of the bias of a low-inflation target is the stagnant growth of real household income per capita during the years prior to the pandemic when inflation growth was below the Reserve Bank’s target rate of 2%.

    For a record 33 straight months from September 2016 through May 2019 while real household incomes flatlined, the Reserve Bank kept the cash rate stable at 1.5% despite throughout all this period inflation was below 2%.

    And yet as soon as inflation goes above the target ceiling of 3% the Reserve Bank seeks to increase interest rates quickly to reduce economic activity and also wages growth, even though wages lag well behind inflation.

    “As the Federal Government undertakes its review of the RBA’s mandate and operations, these broad political-economic dimensions of monetary policy must be considered carefully,” said Dr Greg Jericho, Labour Market and Fiscal Policy Director at the Centre for Future Work.

    “There is no evidence at all that a tight labour market, rising wages, or labour costs more generally have anything to do with the surge in inflation since the COVID pandemic. To the contrary, the evidence is clear that wages have had a dampening impact on inflation in this period.

    “The Reserve Bank and the Federal Government need to take a more careful, balanced look at the nature, causes, and consequences of the upsurge in inflation since the pandemic, before leaping to conclusions that are unjustified – and imposing policy responses that do more harm than good.

    “Since the end of 2019 real wages have fallen 3.1% and are expected to fall even further. The inability of wages to keep up with inflation has seen real wages fall back to 2012 levels. This highlights how the real victims of rising inflation have been workers, and the last thing they should be asked to do is suffer even more in the interests of pursuing an arbitrary inflation target.”


    Related research



    Inflation: A Primer



    Full report

  • Families change but the same problems remain

    Families change but the same problems remain

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

    Share

    Originally published in The Guardian on October 20, 2022

    The latest data from the Bureau of Statistics on families shows that more than ever before couples with dependants are both working.

    Labour market policy director, Greg Jericho, notes in his Guardian Australia column that over the past 40 years the make-up of families has shifted dramatically from ones with just one parent working to now more than 70% having both partners in employment.

    While this has mostly come from the great gains made by women since the 1970s that have seen changes to discrimination laws, child care and also societal norms to allow women to participate in paid work even once they have had children, it also highlights the rising cost of living pressures faced by most families.

    The times when a family on one income could be expected to buy a house are long gone. But the decade of weak wage growth and recent falls in real wages make living on one wage even more difficult.

    But the data reveals that men are still more likely to be the sole breadwinner and it confirms the labour force data that shows women remain much less likely than men to work full-time. This is a major reason why women in over 90% of occupations earn on average less than do men. It means that women remain at a heightened risk of income loss in the event of relationship breakdowns that can severely affect their standard of living, especially in retirement.

    The data also reveals that women remain very much the most likely parent in sole-parent families. Given the laws that now see such parents move from the parenting allowance to the lower-paying Jobseeker once their youngest child turns 8, this highlights the precarious nature over 800,000 women face as they attempt to survive as the sole parent.


    You might also like

    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • War gains: LNG Windfall Profits 2022

    Energy from Fossil Fuels, Tax, Spending & the Budget

    War gains: LNG Windfall Profits 2022

    by Mark Ogge

    Author

    Mark Ogge

    Principal Advisor

    Energy prices spiked worldwide following Russia’s invasion of Ukraine and the resulting restrictions on Russia’s gas exports. This has in turn increased the value of Australian LNG exports and the profits of LNG companies. We estimate the war related windfall gain to LNG companies in 2021-22 at between $26 billion and $40 billion.

    Despite widespread calls by economists and commentators to tax this windfall gain, the Australian Government is yet to do so. At least $20 billion could be raised by a tax on war related profits. This is enough to fund the Australian Government’s entire $20 billion investment in its Rewiring the Nation initiative to modernize Australia’s electricity grid and would leave funds to compensate Australian households and businesses unfairly impacted by spiralling energy costs, largely because of the behaviour of the LNG producers concerned



    Full report

    Share

  • Webinar on Wages, Prices, and Power

    Webinar on Wages, Prices, and Power

    Share

    The Australian Council of Trade Unions is sponsoring a series of webinars for union members, delegates, officials, and leaders on the current crisis in the cost of living in Australia. The surge in inflation since economic re-opening after COVID lockdowns has obviously intensified that crisis. But the seeds for it were planted long ago: by a decade of historically weak wage growth, a speculative property price bubble, and a systematic efforts to weaken collective bargaining and unionisation.

    Jim Stanford (Economist and Director) and Greg Jericho (Policy Director, Labour Market and Fiscal) from the Centre for Future Work are providing keynote presentations as part of this series. Below is a recording of the first of these presentations, presented by Jim.

    For other resources on inflation, how it is undermining real living standards for workers, and how to fix it (without throwing the whole economy into recession – an even bigger risk!), please see:

    The Wages Crisis: Revisited (Centre for Future Work overview of falling real wages, by Andrew Stewart, Jim Stanford, and Tess Hardy)

    An Economy That Works for People (ACTU Macroeconomics Discussion Paper)

    “The Cure of Inflation Looks Worse than the Disease“ (latest Guardian Australia column by Greg Jericho)


    Related research



    An Economy That Works for People



    Full report



    The Wages Crisis Revisited



    Full report

    You might also like

    Dutton’s nuclear push will cost renewable jobs

    by Charlie Joyce

    Dutton’s nuclear push will cost renewable jobs As Australia’s federal election campaign has finally begun, opposition leader Peter Dutton’s proposal to spend hundreds of billions in public money to build seven nuclear power plants across the country has been carefully scrutinized. The technological unfeasibility, staggering cost, and scant detail of the Coalition’s nuclear proposal have

  • With a global recession looming the cure of inflation looks to be worse than the disease

    With a global recession looming the cure of inflation looks to be worse than the disease

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

    Share

    Originally published in The Guardian on October 13, 2022

    This week the IMF released its latest World Economic Outlook. And the outlook is dire. Economic growth around the world was downgraded with recession-like conditions being predicted for many advanced economies including the USA, UK and much of the EU.

    As policy director, Greg Jericho, notes in his Guardian Australia column, the outlook is not much better for Australia. The IMF is now predicting that in 2023 and 2024 Australia’s GDP will grow less than 2%. Such meagre growth in the past has been consistent with periods of recession.

    The report should serve as a stark warning to central banks around the world that their efforts to limit inflation by sharply raising interest rates is becoming more and more likely to end with a recession and the resultant massive loss of jobs that will follow. Experience from the 1980s and 1990s where similar recessions followed extreme tightening of monetary policy suggests it can take a long time to reverse the damage.

    While the Reserve Bank is somewhat constrained because it needs to be mindful of the rate rises in the USA that weaken the value of the Australian dollar, the IMF report should cause them to weigh much more the costs of sharply slowing growth through interest rate rises.

    We know that current efforts to limit inflation growth are mostly involving workers taking a real wage hit. Having to endure rising unemployment and a recession after 2 years of already extreme falls in living standards would be disastrous, especially while profits continue to rise.


    You might also like

    Dutton’s nuclear push will cost renewable jobs

    by Charlie Joyce

    Dutton’s nuclear push will cost renewable jobs As Australia’s federal election campaign has finally begun, opposition leader Peter Dutton’s proposal to spend hundreds of billions in public money to build seven nuclear power plants across the country has been carefully scrutinized. The technological unfeasibility, staggering cost, and scant detail of the Coalition’s nuclear proposal have

  • Yesterday’s Tomorrow Today – a new podcast from the Carmichael Centre at the Centre for Future Work

    Yesterday’s Tomorrow Today – a new podcast from the Carmichael Centre at the Centre for Future Work

    Share

    The Centre for Future Work and the Carmichael Centre are pleased to announce the launch of a new podcast project titled Yesterday’s Tomorrow Today, presented by the Laurie Carmichael Distinguished Research Fellow at the Carmichael Centre, Dr Mark Dean, and comedian and ecology researcher, Duncan Turner.

    Laurie Carmichael believed that a worker-centred agenda for technological change was important to achieving better outcomes for society, with workers and their unions playing a pivotal role in shaping technology and skills for social progress.

    The films reviewed in Yesterday’s Tomorrow Today often depict the opposite of a worker-led future of technological change. It’s the aim of the podcast to break down what this looks like, and to suggest what an alternative future – one that benefits workers and humanity – might look like.

    Listeners of YTT can expect podcast episodes to feature accessible political-economic analysis laced with good humour, reflections on accurate (and not-so-accurate) predictions of a future shaped by the neoliberal surveillance state, and a rotating list of special guests, including Dr Jim Stanford, Lily Raynes (Anne Kantor Fellow at the Centre for Future Work), Matt Grudnoff (Senior Economist at The Australia Institute) and more to come.

    Don’t forget to like and subscribe to Yesterday’s Tomorrow Today wherever you get your podcasts and be sure to leave a review – this is what helps other listeners to find and subscribe to YTT, making sure we can keep reaching working people far and wide.

    Listen to the first episode – a review of 1987’s RoboCop – and what it warned us about deindustrialisation, gentrification, privatisation and police militarisation (also available on Apple Podcasts, Google Podcasts and Spotify).


    You might also like

  • The UK shows how bad the Stage 3 tax cuts will be

    The UK shows how bad the Stage 3 tax cuts will be

    by Greg Jericho in The Guardian

    Greg Jericho

    Chief Economist

    Share

    Originally published in The Guardian on September 29, 2022

    This week the UK government introduced massive high-income tax cuts – cuts that are not even as bad as the Stage 3 tax cuts here in Australia. And the reaction by the market was brutal. Investors saw the tax cuts for what they were – a redistribution of national income from the poorest to the wealthiest, that provided no economic growth. As a result the value of the UK Pound plunged.

    Fiscal Policy Director, Greg Jericho, notes in his Guardian Australia column that there are big lessons for Australia.

    The Stage 3 tax cuts are a case of terrible economics masquerading as a growth strategy. Trickledown economics does not work, never has, and this week we have discovered that even the markets agree.

    Rather than destroy your tax base, governments need to care about sustaining a broad revenue base that works to reduce inequality and fund services and investments that drives productivity and helps those who most need it.

    Trickledown economics has never worked and was always just fraudulent spin designed to hide its real aim of giving rich and powerful people tax cuts at the expense of others.

    This week has shown that no one even believes the lie anymore.


    You might also like

    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • International Seafarers Suffer $65 Million in Wage Theft Annually in Australian Waters

    International Seafarers Suffer $65 Million in Wage Theft Annually in Australian Waters

    Share

    Seafarers working on foreign-registered freight ships in Australian waters face regular theft of wages and other entitlements due to legal loopholes and lax enforcement of labour standards, according to a new research report published today by the Australia Institute’s Centre for Future Work.

    The report, titled Robbed At Sea, examines records of wage inspections conducted over the last decade by the International Transport Federation (ITF), a global federation of maritime and other transportation unions. The ITF sponsors a small team of 4 inspectors in Australia, to conduct spot checks of international vessels visiting our ports.

    Key points:

    • Over the last decade, in close to 5000 inspections in Australian ports the ITF found 70% of ships failing to meet minimum international standards for wage payment and other core labour standards – with resulting recovery orders totaling $38 million over that time.
    • But the ITF team can only inspect a tiny fraction of all foreign vessels visiting Australian ports: about 450 per year, or just 2.5% of visits by foreign-registered ships in that time. On the basis of reasonable assumptions regarding the prevalence of wage theft in the other, uninspected ships, the report estimates total wage theft from international seafarers across the Australian shipping industry of some $65 million per year.
    • Seafarers on foreign-registered vessels (often flying ‘flags of convenience’ to evade labour and tax rules) usually come from low-wage developing countries, and have little power to resist exploitation by unethical ship owners, contractors, and sub-contractors.
    • Stronger rules in port countries (like Australia) are necessary to offer greater protection while they are in Australian waters. But the report identified several loopholes and enforcement failures that explain why these seafarers are routinely exploited, even when delivering cargo from one Australian port to another.

    “Australia prides itself on being a country that respects the rule of law, and a fair go for workers. Yet we are allowing some of the most vulnerable workers in the entire global economy to be ruthlessly and knowingly exploited, right here in our own waters,” said Rod Pickette, co-author of the report.

    “Repeated inspections have confirmed routine wage theft and other exploitation in our ports,” said Lily Raynes, co-author of the report.

    “But those inspections are just the tip of the iceberg. Clearly this exploitation is a normal feature of international shipping, and Australia has both a moral and an economic responsibility to stop it within our jurisdiction,” Ms Raynes said.

    The report makes ten specific recommendations for reducing the incidence of wage theft from international seafarers in Australian waters.

    Report Recommendations Include:

    • Closing a current legal loophole which allows foreign-registered ships to conduct two trips between Australian ports without needing to respect the Fair Work Act or the Seagoing Industry Award
    • Strengthening inspection resources for the Australian Maritime Safety Authority and the Fair Work Ombudsman to ensure that existing rules are better respected

    The report was prepared in cooperation with the International Transport Federation’s Australian Shipping Inspectorate.

    It is being released to commemorate World Maritime Day (Thursday, 29 September) – an annual opportunity to raise awareness about the risks and exploitation faced in international seafarers.


    Related research



    Robbed at Sea



    Full report

  • Robbed at Sea

    Industry & Sector Policies, Wages & Entitlements

    Robbed at Sea

    Endemic Wage Theft from Seafarers in Australian Waters
    by Rod Pickette, Lily Raynes and Jim Stanford

    Authors

    Rod Pickette

    Lily Raynes

    Anne Kantor Fellow

    Jim Stanford

    Media release



    International Seafarers Suffer $65 Million in Wage Theft Annually in Australian Waters

    Seafarers perform difficult, often dangerous work that is essential to the operation of global supply chains, delivering all the merchandise we take for granted in modern life. Yet because of the legal vacuum governing international marine traffic, a lack of resources and attention for enforcement by national regulators, and the corporate strategies of shipping companies and their customers, seafarers are subject to some of the worst exploitation and abuse of any occupation in the world economy.

    As a developed, high-income economy that participates heavily in international freight trade, Australia has a special responsibility to protect and lift labour standards in this vital industry. Australia’s current approach is sadly inadequate in that regard. Our laws tolerate the blatant use of legal loopholes to evade the application of domestic standards, and our regulatory agencies have not made adequate commitments to oversee, inspection, enforcement, and remediation.

    The policy recommendations made in this report would constitute initial and long overdue steps in addressing both the economic and the moral dimensions of wage theft and other forms of exploitation in freight shipping.



    Full report

    Share