Its the Friday lay day blog. I could write a lot on the next story but consistent with my plan to not write much blog text on a Friday I will refrain. But the Governor of the Reserve Bank of Australia disgraced himself yesterday by claiming that the unemployment and underemployment rate were about “where the central bank expected them to be” and that there was no case to be made for easing monetary policy. I wonder where that leaves the bank in relation to its legislative charter as outlined in the – Reserve Bank Act 1959. Further, under the so-called charter of central bank independence, since when has it been appropriate for the Governor of the RBA to lecture the Treasury on the state of fiscal policy? Of course, the so-called independence is just a sham.
In his interview yesterday – reported in the Fairfax article (December 12, 2014) – RBA governor Glenn Stevens says Australian dollar ‘better’ at US75, the Governor:
… pushed back against calls for near-term cuts, saying the economy, jobs and inflation were roughly where the central bank expected them to be.
He also said that if the Federal government didn’t cut the fiscal deficit then:
Australia’s AAA rating could be threatened if longer-term tax and spending issues weren’t fixed.
Without action, including from Senate crossbenchers, he suggested Australia could within five years find itself forced by international bond markets to adopt more hard-line austerity measures, something that has led to double- and triple-dip recessions in Europe.
Both comments violate reason. Taking the second first, who would care if the corrupt rating agencies downgraded Australia’s public debt rating?
Did it hurt Japan in the early years of this century? Not a bit.
Did it hurt the US in the recent years? Not a bit.
International bond markets can only exert an influence on bond yields if the government and the central bank allow them to. It is a failing of the policy makers if they permit the greed of the bond markets to dictate national policy.
The government can always net spend independent of what the international bond markets think of it. You will see that in the Reserve Bank Act 1959, Section 8 empowers the central bank “to buy and sell securities issued by the Commonwealth and other securities”, “to establish credits and give guarantees” and more.
On his first quoted statement, note that under Section 10 Functions of the Reserve Bank Board, Clause (2):
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 under this Act and any other Act, other than the Payment Systems (Regulation) Act 1998, the Payment Systems and Netting Act 1998 and Part 7.3 of the Corporations Act 2001, 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.
In other words, to maintain full employment with price stability so that all people in Australia are prosperous and secure.
However, the RBA has been significantly influenced by the NAIRU concept and it conducts monetary policy in Australia to meet an openly published inflation target. The persistently high unemployment in Australia over the last 25 years, would suggest that the RBA is not working within its legal charter.
In September 1996, the Treasurer and Reserve Bank Governor issued the Statement on the Conduct of Monetary Policy, which set out how the RBA was approaching the attainment of its three identified policy goals.
It elaborated the adoption of inflation targeting as the primary policy target. The RBA (1996: 2) said it had “… adopted the objective of keeping underlying inflation between 2 and 3 percent, on average, over the cycle.”
In terms of the priorities, the Statement said:
These objectives allow the Reserve Bank to focus on price (currency) stability while taking account of the implications of monetary policy for activity and, therefore, employment in the short term. Price stability is a crucial precondition for sustained growth in economic activity and employment.
The rest of the text emphasised the need to target inflation and inflationary expectations and the complementary role that “disciplined fiscal policy” had to play. There was no discussion about the links between full employment and price stability except that price stability in some way generated full employment even though the former required disciplined monetary and fiscal policy to achieve it.
In a stagflation environment if price spirals reflect cost-push and distributional conflict factors, such an approach can surely never work. In the Job Guarantee approach that I advocate, the causality and emphasis is reversed – the creation of full employment guarantees price stability. Without employment buffers (which are the basis of the Job Guarantee approach), the RBA will always control inflation by imposing unemployment.
How does the RBA answer this apparent contradiction? The RBA says that it only has to meet an average inflation target over a business cycle. In 1999, the then Head of Economic Analysis at the RBA, Malcolm Edey argued that the Bank is sensitive to the state of capacity in the economy when it pursues a change of interest rates aiming at the inflation target (Source):
Consider, for example, a situation in which inflation is regarded as likely to be too high. A rise in interest rates will help to reduce inflation but can also be expected to reduce growth. How far and how quickly interest rates should be raised will depend partly on how the economy is performing at the time. If the economy is operating with very little surplus capacity or is overheating, a fairly rapid rise in interest rates might be called for; if, on the other hand, there is significant surplus capacity in the economy, the appropriate increase in rates might be more gradual. Thus it makes sense for policy to take account of short-run cyclical developments in pursuing the inflation target.
But in the next paragraph, Edey (1999) says that the trade-off between inflation and unemployment is not a long-run concern because, following NAIRU logic, it simply doesn’t exist.
Ultimately the growth performance of the economy is determined by the economy’s innate productive capacity, and it cannot be permanently stimulated by an expansionary monetary policy stance. Any attempt to do so simply results in rising inflation. The Bank’s policy target recognises this point. It allows policy to take a role in stabilising the business cycle but, beyond the length of a cycle, the aim is to limit inflation to the target of 2-3 per cent. In this way, policy can provide a favourable climate for growth in productive capacity, but it does not seek to engineer growth in the longer run by artificially stimulating demand.
The RBA is silent, however, about the stock of long-term unemployed that exists beyond the cycle. The empirical evidence is clear that the economy has not provided enough jobs since the mid-1970s and the conduct of monetary policy has contributed to the malaise. The RBA has forced the unemployed to engage in an involuntary fight against inflation and the fiscal authorities have further worsened the situation with complementary austerity.
You should also note that the legislative obligations under the RBA Act 1959 are administered by The Australian Treasury. That should tell you that the claim to central bank independence is another neo-liberal myth designed to reduce the responsibility of our elected officials and allow them to sheet the blame hometo non-elected and largely unaccountable officials.
I suggested to the Australian progressives representatives that I met last week that they team up with the new Unemployed Union and organise a class action against the Reserve Bank Board for breaching their legislative charter. Under the control of a pro bono senior counsel briefed by someone like myself, they could humiliate the central bank officials in a court where evidence is required.
How would they explain a broad labour underutilisation rate of 15 per cent and rising as being consistent with full employment?
On yesterday’s labour force data release, you might be interested in this segment on the national ABC program – PM – Jobless rate ticks up as more people look for work – which was broadcast last evening. I was one of the contributors.
Next week, I am doing an ABC TV Four Corners segment on what I call the ‘unemployment industry’. Please read my blog – Why we should close the ‘unemployment industry’ – for more discussion on what I mean by that.
I will report on the program when it screens in 2015.
Tommy McCook and Don Drummond and the Skatalites
Here is one of my favourite tenor sax players – Tommy McCook – who was born in Cuba but made his mark in Jamaica as a top session woodwind player in the Ska, Rocksteady and later Reggae tradition. He died in 1998. He combined with trumpet player Booby Ellis to form the fabulous Dub horn section – Blazing Horns.
This sample is from his first major band, Tommy McCook & His Skatalites playing the Don Drummond piece – Silver Dollar, released by Studio One in 1964 and produced by Clement ‘Coxsone’ Dodd.
That label has an interesting history, in fact. Up until 1965, Tommy McCook and His Skatalites were session players at Studio One, in Kingston run by the omnipresent C.S. Dodd. It was the leading recording studio and record label in Jamaica.
Lee ‘Scratch’ Perry – was a leading producer at the studio and this is where Burning Spear, The Wailers, Delroy Wilson, the Heptones, and Toots and the Maytals, to name just a few made their mark.
But the writer of the song, Don Drummond – who features on it on trombone player was one of the original members of the Skatalites. He also wrote a lot of music that defined the early 1960s Ska and later Rock Steady eras. The great jazz pianist George Shearing rated Drummond one of the “top five trombone players” in the World.
Here he is in action (around 1964):
There is a great biography of Drummond by Heather Augustyn (2013) Don Drummond: The Genius and Tragedy of the World’s Greatest Trombonist – published by McFarland. It is a very political tract and worth reading.
You learn that Ska music was the:
… people’s music … conceived, played, and listened to by the poor. The middle and upper classed Jamaicans avoided it like a plague. And after labeling its ‘gutbucket quality as vulgar, they banned it from the island’s only radio station, RJR.
But its popularity could not suppress it and it soon became the defining political statement among the poorer Jamaicans.
She also recounts how the Skatalites were never chosen to represent Jamaica in festivals in North America. Quoting a source, she writes:
I can see why the government was concerned. Having seen various members of Skatalites act out in public over the years, these were valid concerns. Nobody knew what some of these guys would pull next, especially the drinkers like Tanamo and Jackie. The problem is that their music was so much better and the really the best representative of ska at the time.
Drummond was never “light-skinned enough to travel to the U.S. on a promotional tour” despite his undoubted talent and the fact that “his songs were lining the pockets of producers and labels in the U.K. as well” as the US. By 1965, Don Drummond had written more than 200 songs that were out on records somewhere.
The hypothesis is that the alienation and exploitation of his musical talents “broke Drummond’s fragile mental state”. He spent a lot of time in the Kingston mental hospital (self-committed and involuntarily committed).
Unfortunately, Drummond’s mental issues became intractable and he killed his girlfriend and was arrested on January 1, 1965 and was committed to an asylum for the insane upon the guilty verdict. He died a few years later still in custody.
After the murder, the two tenor sax players in the Skatalites, Roland Alphonso and Tommy McCook went their separate ways, with the former starting the band Roland Alphonso and the Soul Vendors, and the latter Tommy McCook and the Supersonics. The Skatalites were spread between the two bands with new members joining as complements.
The Supersonics moved over to the Treasure Isle label, run by an ex-cop – Duke Reid. The famous Trojan Records came out of this studio.
While the massive collection of music from Drummond is a major legacy, his other influence was on the contemporary Jamaican trombonist Rico Rodriguez, who is another of my favourite Jazz/Reggae/Dub players.
Anyway, this is what has been playing on my turntable this morning while I have been working. Having a fun morning actually rocking.
And if that wasn’t enough here is Don Drummond with the Skatalites playing his composition – Man in The Street from the Studio One release.
Rally for the Newcastle Train
I urge all people in the Hunter/Newcastle/Central Coast area to join the march this Sunday to protest at the imminent closure of the rail line into Newcastle.
The – Stop the Chop Rally – will begin at Pacific Park, near to the Newcastle Railway Station and march to Civic Park near the Town Hall.
It begins at 10.30. This is the last chance – the conservative NSW Government has decreed that the line will be cut some kilometers out of Newcastle on Boxing Day 2014. That is two weeks from today.
The Newcastle Council has just reversed its support for the cut. The previous regime under the Mayorship of one of the largest property developers had voted in favour of the cut despite the opposition from the local citizens. That mayor was forced to quit after the Independent Commission Against Corruption (ICAC) heard he had made illegal payments to local conservative members of parliament. A number of other property developers are caught up in the same scandal.
The rail line is one of the few remaining areas that is not subject to mine subsidence issues and, of course, it abuts the fabulous harbour. It is a means that young kids can come into Newcastle from the hinterland to access the beaches – and Newcastle area has some of the best surfing beaches on the East coast.
Newcastle and the hinterland is a relatively low income area and the railway is the means for many people accessing the city and the beaches. You cannot load 20 or 30 surfboards on a bus!
The Government promised the rail would be replaced by light rail but there is no plan for that at present. No contracts, design, route. It was a lie.
The bus terminals at the stations are inadequate for the extra services that will be required and no fiscal outlays have been made to improve them.
Save our Rail has fought a long campaign on behalf of the ordinary citizens of Newcastle and those that come into Newcastle on the train to stop the developers getting access to the land.
So please get down and join me and others in signalling that we object to this land grab and the demolition of an essential public service.
If only a small number turn up then the Government and the property developers will claim there was no support for the rail anyway.
I admit to a personal motive – I use the local station to access airports and Sydney and to get to the University some days.
The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:
That is enough for today!
(c) Copyright 2014 William Mitchell. All Rights Reserved.