Catching European, US disease
letter published in The Australian Financial Review, 12 August 2011
The decisions by the United States Federal Reserve and the European Central Bank to effect a further major easing in respective monetary policies raise serious questions about the why their economies are functioning so badly.
Why haven’t the now long existing policies of lowering of interest rates in these countries lifted spending and lowered unemployment rates? And for how long can such “stimulatory” monetary policies, reminiscent of the policies pursued by Germany in the 1920s, be sustained?
One implication of this seemingly last resort to monetary policies is that governments have little else to offer to reduce the
deterrents to higher spending in the private sector. Higher Budget deficits have been tried and failed; and reductions in clearly excessive welfare spending that discourage private effort, and in the regulation of labour markets that discourage employment, may be too difficult politically in present circumstances.
In Australia we are assured by Gillard and Swan that our economic fundamentals are “rock solid”. But there are worrying signs that Australia may be catching the European and US diseases. The sharp drop in consumer sentiment and reduced retail sales certainly suggest that there is increasing concern about attempts by the government to portray itself as the successful “manager” of society.
Yet the apparent strategy in Canberra still seems to be more announcements of new government “initiatives”. It is surely now obvious that government needs to get out of the way by eliminating the many policies that are discouraging expenditures and employment in the private sector.
Des Moore
Director, Institute for Private Enterprise
South Yarra Vic