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Thursday 2 March 2023

Economic Management Or Class War?

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Since May 2022, the RBA has raised interest rates in every month, except January where there was no meeting to discuss such a raise. The narrative is very simple and very clear: rates must be raised, and people must feel the pinch of these rates because we need to tame inflation. The public position being presented is that it is the spending of the populace that is driving inflation and raising interest rates so we have less money to spend is the means of pulling us into line. This is supposed to cause people to feel pressure to accept lower wages, because there is the danger of unemployment rising, and it is better to earn less, than earn nothing. The problem is, that this does not match the data, as Crikey's Maeve McGregor notes:

"In sum, the RBA’s full, incoherent story — in all its glory — runs like this: in its view, inflation is mainly a supply-side problem that it can’t fix but will furiously pretend it can fix; it’s not really caused by the labour market at all but could be down the track; and we’ll hopefully not end up in a recession, but hope’s never a sure thing — just remember the time we told you the cash rate would remain at 0.1% until 2024.

Except, of course, that’s not the full story. Tellingly, the only thing omitted from this confused and misleading narrative was any reflection of the considerable role excessive corporate profits are playing in fuelling inflation, for which the evidence is vast and growing.

According to recent analysis of the latest GDP data, nearly 70% of inflation sitting about the RBA’s ideal target range of 2.5% today can be sheeted home to the extraordinary profits banked by corporations.

The same analysis revealed businesses had increased prices by some $160 billion a year over and above taxes, labour and other costs as of September last year. Absent those extraordinary profits, it says, it’s unlikely the RBA would ever have had a valid reason to volley Australians with nine interest rate rises in 10 months.

Among the corporate winners, it bears mentioning, are Australia’s big four banks, with the Commonwealth Bank alone recording half-yearly earnings to December of $5.15 billion and NAB some $2.15 billion. Notably, both in recent weeks have acknowledged that their inflated bottom lines have directly benefited from the RBA’s “interest rate environment”.

Then of course there’s Australia’s two biggest supermarkets, Coles and Woolworths, which respectively banked half-yearly profits of $643 million and $907 million, and Qantas — the largest recipient of corporate welfare in Australian history. On Thursday it announced a record $1.43 billion half-yearly profit, though it denied this had anything to do with its $2 billion taxpayer handout during the pandemic, much less the economy’s wider inflationary pressures.

Lowe, for his part, has acknowledged the banks are profitable, but told Senate estimates this is “a positive for the country”.

“I know it’s hard for people to accept when they are suffering problems with their personal finances,” he said, “but the country is better off from having strong, resilient, effective banks.”

So the big end of town is rolling in the profits at the moment and this has led some to conclude that what is happening is in effect a class war, the average Aussie is being squeezed to increase profits for the wealthy, 

"In reality, what’s truly difficult for people to countenance is the notion that their declining real wages are to blame for rising prices when the true culprit is largely the corporate profiteering enabled by the RBA in a highly concentrated and uncompetitive market.

As Ross Gittins recently put it: “Join the dots, and you realise the RBA’s plan to get inflation down quickly involves allowing a transfer of many billions from the pockets of households to the profits of big business."

If the intention to profit the large end of town is not there, the result is all the same. A larger percent of the average Australian's wealth is ending up in the hands of those who already have a lot of it to start with. A truly unjust situation. 

Who is the RBA really serving in all of this? Not the average Aussie, we are being done over, while corporations bring in record profits. Corporations made record profits during Covid (partially because of tax money being transferred to them through government stimulus), and now they are being enabled to make even more of them in the aftermath of policies that suited their large supply chains and centralized ability to take advantage of people staying at home.

From the outside looking in it appears that during Covid corporations were able to use their power to lobby the government for stimulus that helped them profit in economically unstable times, and now they are able to use their influence in other ways as well, so that they come out on topic in this era of inflation. “The RBA’s unspoken game plan is to squeeze households until demand for goods and services has weakened to the point where big business decides that raising its prices to increase its profits would cost it so many sales that it would be left worse off.”

The health of banks and corporations appears to be a far more important factor for elites in determining the health of an economy, than the buying power of the average person. 

How far can this go? We will have to wait and see. There has been no indication that interest rates are going to stop being raised, just yet. There is no indication that these corporations will share their vastly increasing wealth, except with their shareholders of course. But it is becoming more and more obvious to many all of the ways that our modern monetary system is set up to transfer the wealth of the average person to further enrich the powerful. 

Except for a few times in history, when has it been any different? 



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