Latest news with #FriedrichHayek
West Australian
6 days ago
- Business
- West Australian
Dimitri Burshtein & Peter Swan: If RBA slashes rates this month, it will be giving in to political pressure
It may be heresy to say, but the case for an official interest rate cut at the coming RBA monetary policy board meeting is exceptionally weak. Austrian born economist Friedrich Hayek once observed that 'the root and source of all monetary evil is the government's monopoly on money.' In Australia, that monopoly takes form in the RBA — an institution notionally independent, but increasingly susceptible to political pressure. Following recent data which showed inflation remaining within and not below the RBA's target band, the usual chorus of economic commentators and political actors have launched into a ritualistic call for a rate cut. And as the August 2025 Monetary Policy Board meeting approaches, these calls are growing in both volume and vehemence. For the RBA to heed these demands would not simply be an error but it would represent a further descent from a disciplined monetary authority into a compliant servant of political convenience. The RBA's mandate is neither ambiguous nor advisory. It is enshrined in legislation: to ensure price stability, full employment, and the economic prosperity of the Australian people. Nowhere in the RBA Act is there an obligation to underwrite misguided fiscal policies or to provide political cover for governments unwilling to confront the consequences of their own policy malpractice. Yet that is precisely what a rate cut would amount to at this juncture. A backdoor bailout of bad fiscal and regulatory policy suppressing economic growth and productivity all under the guise of independent monetary policy. Evidence of persistent economic pressures across key sectors of the economy abound. These pressures are not being driven by private sector exuberance but by reckless fiscal expansion at all three levels of government. Governments have overstimulated demand while constricting supply through over-regulation, sky high energy costs, and an expanding public sector that absorbs available labour. In this context, a rate cut would simply exacerbate the underlying causes of Australia's economic malaise by further distorting the allocation of capital and labour, rewarding inefficiency while penalising prudence. There is equally no compelling case for monetary stimulus based on labour market data. Unemployment remains historically low. And while there are tentative signs of a slowdown in private sector hiring, the slack is being absorbed by growth in the public and care economy. If the RBA cuts rates now, it will not be reviving a flailing private sector. It will be validating a dangerous economic realignment: one that favours public consumption over private investment, short-term palliatives over structural reform, and ideological convenience over empirical rigour. Prevailing arguments for a rate cut are based in the flawed logic of the Phillips Curve — the mid-20th century economic model that posits a trade-off between unemployment and inflation. But the Phillips Curve has failed repeatedly. It failed to anticipate stagflation in the 1970s, failed to explain the low-unemployment, low-inflation paradox of the 2010s, and fails to grasp the unique drivers of today's price instability. Continuing to base policy on such a model is akin to navigating a storm with a broken compass. Real world outcomes have diverged too often from its predictions to treat it as a reliable guide. To make matters worse, Australia's currency has declined by more than 7 per cent over the past five years. In a country that imports the majority of its essential goods — from fuel to food, electronics to pharmaceuticals — a weaker dollar has a direct effect on household costs. A rate cut now would almost certainly further accelerate currency depreciation, amplifying imported inflation. This risk alone should give any responsible policymaker pause. Yet the calls for easing continue, not because the data demands it, but because habit, ideology, and political cowardice conspire to make it seem palatable. A rate cut in August would additionally punish savers, reward speculators, erode the purchasing power of the dollar, and send an unmistakable message that the RBA no longer takes its inflation target seriously. Worse, it would reinforce the delusion that the bank exists to smooth every bump in the economic road, regardless of whether that road was poorly built to begin with. This is not just an Australian phenomenon. Since the tenure of Alan Greenspan in the US, central banks around the world have morphed from guardians of price stability into crisis managers and economic nannies. The so-called 'Greenspan Put', the expectation that central banks will always ride to the rescue at the first sign of market discomfort has corrupted monetary policy, undermined fiscal discipline, and left global economies addicted to cheap credit. The result has been decades of asset bubbles, rising inequality, chronic debt dependence, and an institutional inability to endure even mild economic correction. Monetary policy must return to first principles: price stability first; everything else second. If the RBA hopes to preserve its credibility, its independence, and its very relevance, it must hold the line, ignore political pressure and not cut the official interest rate. Dimitri Burshtein is a principal at Eminence Advisory. Peter Swan AO is emeritus professor at the UNSW-Sydney Business School.
Gulf Today
07-07-2025
- Business
- Gulf Today
America's broken politics affecting economy
The political realignment has come for economics. At least since the days of Friedrich Hayek and John Maynard Keynes in the last century, the divide in economic thinking roughly corresponded to the political split. In the mainstream, everyone was a capitalist and saw some role for government. The right/left divide was mostly over exactly how big that role should be. Now, in economics as in politics, it is no longer left versus right; it is moderates versus populists. The question isn't so much the optimal size of government in a global market-based economy, it is whether the economy is positive or zero-sum and how it entrenches power, according to Tribune News Service. The result is unlikely allies and enemies. The horseshoe theory of politics holds that extreme left and right partisans agree more with each other than they do with the centrists in their party. That theory now also applies to economics. A decade and a half ago, economists and policy wonks were divided on things that in retrospect seem quite small — the structure of the Affordable Care Act, for example. More and more lately, I struggle to find disagreement with center-left economics pundits who used to make me shake my head. It could be that we are all moderating with age. But I don't think so. It's that the conversation has changed. The debate is increasingly about questions we moderates have long seen as resolved, such as whether price controls work (no), globalization is a good thing (yes), or growth should be the primary objective (of course). These questions are being revisited because populists have become a much bigger and more influential force in US politics and policy — and as they do, centrists find that we have more in common with each other than the more extreme wings of our respective camps. It's not just me. Ezra Klein recently described a divide in the Democratic Party over the so-called abundance agenda, which argues that getting many regulations and special-interest groups out of the way can unlock more growth. So-called 'abundance liberals' argue that, with the right policies, the government can increase economic growth and make everyone better off. The more populist wing of the Democratic Party rejects this approach, because it sees the real problem as power. It has a more zero-sum view of the economy, in which the powerful (usually corporations and the rich) take most of the limited resources everyone should be entitled to. I am closer to abundance liberals (let's make a bigger economic pie) than I am to populist liberals (let's make sure the pie slices are exactly even). I also support getting rid of wasteful regulations and favors to special-interest groups. The difference is that I think these barriers need to be removed to empower the private sector, not the government, to drive growth. This is not a trivial difference, and someday it will probably tear our fragile alliance apart. But for now, compared to the alternative, it feels semantic. Conservatives are facing a divide similar to the one Klein describes among liberals. The populist strain of the right also sees the world as zero-sum and condemns the concentration of power — not of the rich, but among foreigners and institutions: universities, technology firms, government bureaucracies, international agencies, and so on. President Donald Trump's administration reflects this division. Its economic team includes representatives from the more traditional pro-growth wing of the Republican Party, with trained economists and people who worked in finance, as well as people from the more populist zero-sum wing, dominated by Yale Law graduates and their fellow travelers. This realignment will shape America's economic discourse and policies for the foreseeable future. Rather than a right/left divide on the role of government, the main debate going forward will be between centrists and populists.
Bloomberg
01-07-2025
- Business
- Bloomberg
America's Broken Politics Is Breaking Economics, Too
The political realignment has come for economics. At least since the days of Friedrich Hayek and John Maynard Keynes in the last century, the divide in economic thinking roughly corresponded political split. In the mainstream, everyone was a capitalist and saw some role for government. The right/left divide was mostly over exactly how big that role should be. Now, in economics as in politics, it is no longer left versus right; it is moderates versus populists. The question isn't so much the optimal size of government in a global market-based economy, it is whether it the economy is positive or zero-sum and how it entrenches power.
Wall Street Journal
15-06-2025
- Business
- Wall Street Journal
Javier Milei's Gift for Pope Leo
On June 7, Pope Leo XIV met with Argentine President Javier Milei at the Vatican. Mr. Milei reportedly gave the new pope a historical document from 1642, a handwoven vicuña poncho, and Austrian economist Friedrich Hayek's 1988 book, 'The Fatal Conceit: The Errors of Socialism.' Even though the book costs only $18.83 on Amazon, it was the most valuable gift. Hayek's fatal conceit is that 'man is able to shape the world around him according to his wishes.' It's a hearty defense of free markets—of classical liberalism. My colleague Matthew Hennessey got taken to task by the vice president for defending free markets on these pages. In 2025!
Yahoo
14-06-2025
- Politics
- Yahoo
Labour's insane economic policies are taking us back to the dark 1970s
We have been here before. The crisis that the country faces may be catastrophic but it is not unprecedented. Anyone old enough to remember life in 1970s Britain will recall an almost universal sense of utter hopelessness and resignation. Most people (but not all, as it turned out) seemed to be beyond any thought of constructive rebellion against apparently invincible forces. Decline was not just an alarming possibility: it was inevitable and crushing in its finality. The everyday business of life was not simply encumbered by incompetence and infuriatingly poor services as it is now. It was made virtually impossible: the lights were going out on a regular basis along with facilities like heating and cooking, which relied on electricity; the train service on which commuters depended (no working from home back then) was repeatedly withdrawn sometimes without warning; and essential supplies were obstructed, which caused desperate shortages of goods. It was often observed, with characteristic British irony, that it was like living through the war – only this time the enemy wasn't foreign. You know what happened next. The Thatcher Government broke the death grip of trade union power which had crippled the British economy, not just by new legislation that directly limited the unions' coercive practices but by dismantling the nationalised industries over which they had a monopolistic hold. Along with union hegemony, the suffocating grip of Left-wing councils was also brought down. I recall this particularly vividly because my family's life in the London Borough of Haringey had been turned into a class war nightmare by a vindictive Labour council whose rising star Jeremy Corbyn obligingly closed down the schools in solidarity with the striking caretakers. But the miraculous revolution did not happen overnight. The first attempt to beat the coal miners who were critical to this struggle failed because the deprivation that their prolonged strike caused was too great for the population to bear. It took the Government a year of stockpiling coal in a carefully planned strategy to survive another winter of strikes before the breakthrough came. There was no instant revelation on the political front either. The presentation of what soon became known as Thatcherism, with its transformational view of how wealth was created and distributed ('growing the pie' as opposed to simply dividing up the existing one into more equal pieces), was a major philosophical undertaking. This was no mere electoral strategy. It was a historic shift of paradigmatic social thinking: a systematic argument with the Marxist analysis that had dominated political discourse in its harder or softer forms for a century. It took philosophical thinkers like Friedrich Hayek and Nobel Prize-winning economic theorists like Milton Friedman, translated into practical action by an inspirational political adviser like Sir Keith Joseph, to create solutions that no one could have foreseen a generation before. Yes children, that was how it happened all those years ago that Britain emerged from what looked like an inevitable descent into domestic failure and global insignificance. But how can this be relevant now? After all, we have learnt the essential lessons about how to create economic growth and encourage the spread of it through society – haven't we? We know that private enterprise must be allowed to flourish if actual wealth is to increase, and that the state can only spend real money that markets produce if it is not to bankrupt the nation with debt. And, what is more, if the state inhibits or depresses the ability of private entrepreneurialism to flourish, there will be no possibility of it improving living conditions for anyone. Surely we know all this – don't we? The awareness of it must be embedded in the consciousness of every serious politician who aspires to power. (The unserious ones who are so ideologically purblind that they will not accept it are, I genuinely believe, unlikely ever to be more than a disruptive nuisance.) Blairite Labour had to demonstrate that it had been converted to the new truth before it could hope to be re-elected. It staged a ceremonial renunciation of the old dogma with the removal of its commitment to state ownership of the means of production and declared itself enthusiastically committed to capitalist free markets – so long as they were accompanied by 'social fairness' (which was, unfortunately, redistribution by another name). After all that, here we are. A new Old Labour Government is now restoring the suffocating employment rights which make the dynamism and flexibility of entrepreneurial business impossibly difficult. It promises enormous amounts of money that don't exist and cannot be produced, because of the restrictions it has put on private enterprise, to public services like the NHS designed on the old monopolistic model. It caves in, without a struggle, to the demands of every public sector union for all the world as if the 1980s had never happened. What is at the heart of this? To understand such retrograde thinking, you must listen to the rhetoric in which it is expressed. The Prime Minister and his hapless Chancellor speak of 'working people' as a homogeneous class whose communities are as conformist and predictable in their attitudes and loyalties as they were 50 years or more ago. Their lives are seen as inextricably bound up (and limited by) a single local industry which must be renewed or replaced by another industry or by a technological revolution into which the population can be inducted. There appears to be no understanding that what used to be a solid, passive working class which wanted nothing more than safe jobs for itself and its progeny was awakened by the 1980s to the possibility of social mobility. The working people to whom Labour is offering its expensive beneficence may now quite possibly be inclined to start up their own ventures and move on. Pouring government money into regional capital projects will mean taxing their new enterprises into the grave. The revelation of the Blair years was that there were lots of working (class) people who did not welcome the traditional, patronising Labour message. They may still be a minority, these brave individualists, but they are the future and they will not be ignored. 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