The sneaky electric shock behind our sky-high living costs
If the Reserve Bank of Australia had its time over again, it might have paid more attention to a sneaky decision that Scott Morrison’s government made last April to delay the release of a critical piece of information on electricity prices.
The absence of that data appears to have contributed to the false sense of security that the RBA – and market economists – had about inflation. It meant that interest-rate policy was much softer than it needed to be in the first half of 2022; it was a miscalculation with potentially damaging consequences for the economy now that the central bank is playing the grim game of catch-up.
The irony should not be lost on Treasurer Jim Chalmers. This week’s RBA decision to raise interest rates for a ninth consecutive time – and the warning of more pain to come – increases the risk of a 20th century-style recession on Labor’s watch.
Australia faces a rerun of the economic dependency that we thought we had left behind, in which a recession in the US meant a hard landing here. The power we had to set our own course – which we demonstrated under Labor during the global financial crisis in 2008-9, and again under the Coalition in the early years of the pandemic in 2020 and 2021 – is gone. It vanished once inflation returned, and the RBA reverted to its former self of the 1970s and 80s when it was too slow to respond to a Made-in-America shock.
The public backlash from members of the Labor caucus against the RBA this week underlines both a nervousness, and cluelessness, in the ranks. It risks placing Anthony Albanese’s government in the same self-defeating position as Morrison’s, in which politicians undermine an institution already low on public trust.
There is another irony for Chalmers in the role reversal of a man who his former boss, Labor treasurer Wayne Swan, looked up to – and quoted at length – during the GFC: Bruce Springsteen. The US singer has become the perverse symbol of why this inflation crisis will not easily be resolved by the sledgehammer of interest rates. The social contract that held people together in lockdown is being torn up as those with market power, Springsteen included, try to make up for the profits they missed out on in 2020 and 2021.
But first, a reminder of the Morrison government’s culpability. The Coalition held back the news of an electricity price shock for households and small businesses in NSW, south-east Queensland and South Australia until after the May 21 election. The political calculation was obvious enough. The so-called default market offer which the Australian Energy Regulator would normally have issued on May 1 contained double-digit price rises for the coming financial year, 2022-23. Those details would not have been helpful for the Coalition campaign.
But the RBA board needed to know this before its fateful meeting on May 3 last year when it lifted official interest rates for the first time since 2010. Ideally, it would have been given a heads-up a month beforehand, before its April 5 meeting when it left the cash rate unchanged at 0.1 per cent.
Energy prices are not mentioned in the RBA’s decision to hold rates steady in April, or in the decision to increase them by a modest quarter of a percentage point in May. But they are in the post-election decision of June 7 to lift rates by a further half a percentage point to 0.85 per cent – a decision taken a fortnight after the AER report was released under the new Labor government on May 26. “Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago,” RBA governor Philip Lowe said.
The big debate we need to have from here on is how to expand the role of government, while preserving the independence of the RBA. It may come as surprise to the defenders of free markets, but both the good and the bad of capitalism is pointing the way to a new form of intervention.
An increasing share of the jobs being created in response to the needs and wants of consumers is in areas which governments are directly involved, either as providers of services or through taxpayer subsidies to private operators – namely health, aged care, childcare and disability. These new jobs have been coming at the expense of the old blue-collar economy of manufacturing, construction, agriculture and mining.
The blue-collar economy accounted for almost 30 per cent of all jobs at the end of the 1980s, when the Hawke-Keating deregulation model was being built. Today, that figure is just below 20 per cent. The brain and caring economy – of healthcare and social assistance, the professions and education – has lifted its share from 20 per cent to almost 33 per cent over the same period.
Government has a greater role in dealing with the inflation shock than it might realise. While it’s true that the shock began with Russia’s invasion of Ukraine, and the supply-side issues coming out of the pandemic, there is something else going on which every politician would recognise from the feedback they are receiving from voters. Small businesses are being gouged by commercial landlords, and suppliers. Young renters are being screwed by mum-and-dad landlords. Higher interest rates can’t address that part of the inflation equation.
Albanese and Chalmers should be ready for this particular assignment. Between them, they hold the lever of moral suasion. They should publicly take the side of the victims – even at the risk of annoying the landlord class. The more difficult challenge is the longer-term project of securing the caring sector with a more stable taxation base, and encouraging the brain economy with a better-educated supply of local-born labour to complement the overseas migration program.
Which brings us to Bruce Springsteen. He has been embroiled in an argument with his fan base over concert ticket prices after his decision to embrace the so-called dynamic pricing system through the monopoly Ticketmaster agency, under which prices rise according to online demand. That pricing system is familiar to anyone who has tried to book a flight, or a hotel room; it is trip-wired for gouging.
An unrepentant Springsteen explained that he wanted to try something different after charging below-market rates for 49 years. “The ticket broker or someone is going to be taking that money,” he told Rolling Stone magazine last November. “I’m going, ‘Hey, why shouldn’t that money go to the guys that are going to be up there sweating three hours a night for it’ … I know it was unpopular with some fans. But if there’s any complaints on your way out, you can have your money back.”
The 73-year-old near billionaire got his answer this week when one of the best-known fan magazines in the Springsteen ecosystem, Backstreets, wound up its operations and left the Boss this parting shot: “These are concerts that we can hardly afford; that many of our readers cannot afford; and that a good portion of our readership has lost interest in as a result.”
I have to confess, as a long-time Springsteen fan, and subscriber to Backstreets for more than 40 years, that I didn’t expect the Boss to provide the defining quote for our gouging times: “Hey, why shouldn’t that money go to [me and my] guys.”
He is not same as the old Boss, whose greatest body of work in the 1970s and 80s was about the victims of stagflation and Reaganomics.
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