Monetary policy
A primary role for all nation states is to secure and maintain the monetary system. This pertains to the rate of inflation, the rate of interest and the exchange rate. These are conventionally managed by monetary policy.
In Australia in the last five years, monetary policy has been called on to play an additional role. With fiscal policy as tight as is feasible, monetary policy is being used to regulate the level of demand. Tight monetary policy, by cutting demand, keeps domestic prices down. It is also being used as a balance of payments policy: to cut demand for imports, and thereby take pressure off capital inflow and the exchange rate.
There is widespread agreement that, in achieving these goals, monetary policy has exerted savage effects on the economy. Yet there is also a widespread view, rightly or wrongly, that low inflation and improved balance of payments are critical. Any loosening of monetary policy, let alone fiscal expansion, will create inflation and worsen the balance of payments.
The issue is: is it possible to increase the level of national economic activity, consistent with stability in the monetary system? For monetary policy, the expected policy response is clear. The Governor of the Reserve Bank is explicit in arguing that monetary policy must be supported by wages policy.
What it means is that monetary policy alone cannot work. While it restrains demand, it does not discriminate between labour and capital; it cuts investment demand as well as consumer demand. The current policy makers want a policy which cuts consumer demand, but does not cut investment demand. The answer, it is argued, is wage cuts.
Wage reductions are increasingly being called on, in tandem with monetary policy, as the key to economic recovery.
The problem for those wanting an alternative is that the series of Accords have locked the ACTU into a view which acknowledges wage cuts as necessary for recovery of the economy. The fact that the recovery is going backwards does not change this theoretical acceptance of the legitimacy of wage cuts as an economic strategy.
The thing is that economic policy, including monetary policy, is as much about class relations as it is about "responsible" economic management, and all capitalist economies are driven by profits, not by wages. The class objective of shifting income from labour to capital, which many of the left have acceded to in the name of "responsibility", cannot be turned around simply by advocating cuts in interest rates, or budgetary expansion. The rejoinder will be that the policy is "economically responsible" and how can "responsibility" be appropriate one year and not the next?
The class dimension to economic policy is that this so called "responsible" policy continues to impose the burden onto labour. Consequently, the whole agenda of economic policy, and not s of budget deficits and interest rates, must be challenged fundamentally.
[Reprinted by permission from Avanti, journal of the Construction, Mining and Energy Workers' Union (WA branch).]