Have just been watching this video on 9's YouTube channel where the RBA says more than 100,000 people need to lose their jobs in order to bring inflation under control, and my non-economic brain is struggling to comprehend why. I admit I don't know jack shite about economics, and would appreciate if those who're better versed in that field could shed light on why the two are connected. Working in a job where I see the number of unemployed people increasing by the day, and you come across news like this, you start questioning reality. Is it necessary for more people to lose their jobs in order to control inflation? Is there any scenario where almost anyone who wants/can do a job has one, and inflation is very low?
"More People Have to Lose Their Jobs to Control Inflation" RBA
AussieDaddy on 21/06/2023 - 20:24
Comments
Is it just that simple, or there's more to it? Maybe the pandemic and Ukraine war have something to do with it too, among other things? Also, you hear countries where the US has imposed sanctions struggling with high inflation, so I don't think it's just that simple?
Of course it’s not just that. There’s tons more factors and variables involved from politics to raw material shortages.
But your question was specifically around how jobs affect inflation.
Ta
@dcep: And yet not, 5 economists, 6 opinions
https://www.afr.com/policy/economy/profit-price-spiral-isn-t…
There is also the NAIRU.
The RBA explain it here:
https://www.rba.gov.au/education/resources/explainers/nairu.…Damn! It all sounds like a way to keep a section of society totally reliant on government handouts, or financially struggling to ever be free from debt. A systematic class system, to make sure a certain demographic of society to do certain low-paying jobs forever? Or that comes across as a conspiracy theory?
@AussieDaddy: People are free to educate and upskill.
The system is setup to reward those that add most value to society (positive) and those that know the system and can leverage it to their own advantage (not so positive).
If unemployment is too low (below NAIRU), employers are essentially forced to pay more to attract any type of talent, and the people they end up employing are generally less qualified (lower skill level). As such you are paying more to get less (and if it is costing companies more, they will just pass it on to the consumer).@Malik Nasser: That doesn't change the fact that some people are stuck in low paid work and eventually the effort/skill needed to 'climb the ladder' becomes greater, for no reward.
Look at the working hours/conditions in China/Japan/Korea
That doesn't change the fact that some people are stuck in low paid work and eventually the effort/skill needed to 'climb the ladder' becomes greater
That's exactly why you need to put in the time, hard work and effort to upskill and educate.
@infinite: I am talking about the premise that everyone should be told to upskill is ridiculous. You are focusing on an individual example and missing the point
@AussieDaddy: Yes, thank goodness we live in a capitalist society where the market is guided by an invisible hand and not a socialist paradise where a small group of people at a central bank make the decisions for us… oh wait.
@AussieDaddy: Not a conspiracy theory. "You will own nothing and be happy". The elites are saying it out loud. Of course they will get to retain their wealth and privilege; it is just the commoners you will have to suffer from a massive decrease in living standards.
“Those who have power make choices that create poverty. They get it wrong not by mistake or ignorance but on purpose.” - Why Nations Fail
“Tens of millions of Americans do not end up poor by a mistake of history or personal conduct. Poverty persists because some wish and will it to.” - Poverty, By AmericaInflation is "TOO MUCH MONEY chasing too few goods". We don't need to retrench people; we just need to reduce the wealth of the richest 50% of the population. End middle class welfare ("wealthfare"); increase the highest tax rate to at least 50%; eliminate all tax deductions (these benefit the rich predominantly); terminate superannuation tax breaks and tax superannuation withdrawals as income; annually tax capital gains; introduce luxury taxes for things the affluent purchase (air travel, private schools, cosmetic procedures, high end automobiles, etc). What to do with the money? Pay off debt primarily; with the leftovers increase pensions/dole/rent assistance/medicare rebates and build new houses for the poor.
Long ago discredited by most economists. Does not work any more.
@gravel: Unfortunately, the RBA posted it on their own website, so they will be forced forever to keep spouting and repeating their own bulls.,t, until the day the organisation is replaced.
Sounds like a nice country: Let's all move to Nailu!
Its all thanks to Government and RBA artificially pumping CASH in market, this is why liberalism, free markets or Less government control on financial markets is better.
We'd be in so much less pain if we would have suffered some minor problems in 2019, 2020 and not have this government induced CASH SPLASH ( by fake promises to not rise interest rates, or by giving people money to chill at home & pay them more than what they normally earnt from JOB).
Yeah now so many sectors are closing, so many people loosing jobs, business, small businesses, financial markets etc. Yet some are still going to make millions like Banks or other corporations (by sacking people, or increase there profits). Getting more profits is hard when people spending less, SO obviously only way to stay profitable is by being efficient (i.e. pay 1 to do job of 3, sack other 2, pay 1 like 20% more, and you save up 180%).
the bigger issue is market dominance /market power and other factors leading to higher unit profits and thus inflation. Which is not the "free market sorting itself out" as there is a huge cost for new market entries and large supply side factors to bring down prices that matter to inflation - e.g. groceries / utilities / fuel
in laymans terms , companies are increasingly becoming price setters and put up prices because they decided to, not because they are facing higher labour costs (that is one element but doesn't explain the jump in unit profits)
https://www.oecd-ilibrary.org/sites/ce188438-en/1/3/1/index.html?itemId=/content/publication/ce188438-en&csp=f8e326092da6dbbbef8fbfa1b8ad3d52&itemIGO=oecd&itemContentType=book#section-d1e199-6539cc9538
This is a good breakdown - read box 1.2
Useless public servants in bullshit office jobs still are there raking in money
Less government control just allows other players to step in and take control, based on wealth. The government represents the people, giving that control away isn't going to benefit the people in our society.
Well no one wants a pay cut and spending has to reduce so the next best thing is a few unlucky people having to lose their income
The RBA also admitted a large portion of our current inflation is companies profiteering, look at Telstra plan price increases, it's more than inflation.
Ofcourse, big companies posting profits in the billions with artificial price increases has nothing to do with that.
Everyone whose reasearches suggested that did not know what they were talking about.
What else would you expect from a RBA board full of mining and supermarket executives ?
Also economists taught by professors that are board memebers of big corporations ?
Yeah I think this is the most transparent reading of the situation - big companies increased profits and now there's no money for jobs for you.
this. if only the media educated everyone on this hypocrisy. it's only when the little person earns a pay rise that the RBA warns 'this could be terrible and cause inflation'. Or when the job market is friendly for the little person who wants to work and get a job. Why does the 'perfect economy' need to be a state where the lower income classes have to be suffering? If they gain even an inch, the economy suffers? That's what we are being told.
The politicians have long since failed/been bought as well. So this way of things will not change anytime soon.
it's a broken world. Sad for Gen Z and the younger generations. At least the last few decades the average person with no 6 figure inheritance could still build a life with hard work. Not anymore, the system that works for the rich is too strong now. When was the last time a wage increase beat the inflation rate? every year the common person loses/falls behind. But CEOs, Execs, MPs all escape that trend.
media won't because they are owned by the same billionaires….
and the universities and schools won't teach it because the course content is set by the board members that work for those billionaires…
I thought the Millennials had it hard, but Gen Z and whoever comes after them are really screwed looking at the way things are going.
We all worship Gerry and his dog?
Won’t stop Old c*nuts with hoarded wealth from spending, because ‘they worked hard for it’.
I feel like the RBA is just throwing out random things now. Last week it was that productivity was down and people needed to work more. Which one is it?
Should I work two jobs or just lose the one that I have ? Lowe just make up your mind FFS!!!
I don't have any data but I would love to see some figures (over time) that can compare household spending on essential items vs other sectors to understand just what parts of the economy really are spending more.
The RBAs assessment that 100k people need to lose their job seems like a structural failure. Surely, even if they are low/minimum wage jobs, our economy should be able to cater to everyone who can work, being able to work?
Maybe I'm too much of a commie by modern standards, but it seems pretty trash that the benchmark for a reliable economy depends on people being out of work.
yeah, more people jobless means a bigger pool for companies to hire -> pay lower salaries ->Increased profits simples!
@azero: True. but when have you ever seen those numbers (salaries/retail prices) go downwards? This all looks like a one way thing, like the uncontrolled US economic train, picking up speed.
@Nickels n Dimes: I'd argue that salaries haven't kept up with the inflation, so have gone down in real terms. But the retail prices have gone up.
Even mine hasn't kept up with the official inflation figure, essentially getting a pay cut.
@duchy: @duchy Didn't Japan only recently experience inflation? Inflation hasn't been much of a thing for that country for around a decade as I understand it.
not random at all, what they said around productivity is the importance of productivity increases to go along with wage growth, no productivity increase means upwards pressure on inflation, similarly when we are at full employment we also have upwards pressure on inflation. basically if we want wage growth we need to be more productive otherwise it just feeds the inflation monster.
But productivity has sky rocketed in the last decade while wages stagnated, granted productivity has slumped after the pandemic, but I think that's people getting sh**ted off with cost of living VS wages. I'm finding it hard to accept increased productivity = less inflation, more wage growth when it hasn't happened in previous years.
@Ultimate Gattai: The reality is what happened in the last decade is just not relavent. Inflation is linked to whats happening now and in the past year. increased productivity is able to offset inflation (assuming companies don't gouge), something like 5% wage increase is offset by a 1% productivity increase. Without the productivity increase it means rising costs for the organisation and they will be passed on to the buyer as inflation.
A simple example, if a company has 1 employee costing them $100 a year to employ and he makes 10 widgets which sell for $11 each. The company makes $10 a year profit, If they now pay the person $105 they either halve their profit or increase the price of the widgets to $11.50 to just stay the same or more likely $12 so they are not also falling behind on the inflation/risk train. If however that person increases productivity to 1 more widget a year then the company increases profit to $15 and the employee gets their payraise and the consumer doesn't get hit with the inflationary price rises.
always Hybroid delivers, love this guy!
Fairly b̶a̶s̶i̶c̶ bullshit concept.
The people pushing demand, hoarding wealth, buying dumb shit aren't the ones who will 'lose their jobs'. Also (profanity) off with this swooping in and over simplification of economics all the time. The real world is a lot more complex and has a lot more variables. No it is not a fairly basic concept.I think Hybroid's concept has some truth, but that economic method is utterly immoral, and the result is iniquitous at every level.
Maybe Australia needs to re-nationalise natural resources. We're paying international market prices here for resources that are abundant locally. That should reduce inflation?
We are told our biggest problem is our economy lacks diversity and is reliant on natural resources harvesting.
Yet the Emiratis live like kings, low taxes, healthcare, education, housing all provided to them from the wealth of their nations resources. So too in Norway, via the sovereign wealth fund.
Instead we have a nation of ignorant fools that keep asking for the 'free market' and less government control - declaring that our wealth does not belong to the citizens. They vote against 'socialism', and against taxing mining corporations. We are another banana republic.
Yeah Australia is one of the biggest gas exporters and coal exporters but has expensive gas and electricity for its people. WOT?
It’s a bit ridiculous how much in subsidies we pay to mining companies, but how much of the profit stays in Australia.
Even from a jobs perspective, it seems like a drop in the ocean compared to other industries.To be clear before people jump on me. Im not anti mining, it has a purpose, i’m anti our natural resources being plundered and profits sent overseas, while we pay a fortune for things.
Yes, When i saw the way Norway was benefitting from their resources, like Canada has as well it made me sick. We could be doing so well as a nation.
https://preview.redd.it/comparing-norway-and-australia-in-ta…
It's not due to spending. It is more that low unemployment leads to employees having more bargaining power and businesses have to compete for workers by offering higher salary. Wage inflation means business costs go up, which means prices go up for everything… goods and services… which is inflation.
It’s because if less people have a job there is less labour $ cost. Therefore, businesses are increasing productivity which helps kerb inflation.
The issue is labor isn't heterogeneous and the market is not omnipresent
If less people have a job, there are less people to buy products and services from the majority of businesses, so many businesses fail, only a handful of large corporations will see increased productivity.
The main tools to reduce inflation are monetary policy (setting interest rates and controlling the money supply to slow down credit and spending) and Fiscal policy (increasing taxes such as GST to reduce demand). Other policies include supply-side policies, wage control, appreciation in the exchange rate, limiting tax expenditures and subsidies, intervening in markets to cap or freeze prices, put a super-profits tax on particular industries, temporarily lift the amount employers pay in superannuation for workers, increase Medicare levy or other taxes, pass interest increases on deposits faster, or change competition laws to reduce large corporate power.
just
get a better joblose your jobIf only I could get instant dole support. I'd be tempted then. Hmmm maybe they should do what health insurance companies do, remove the waiting periods. Lol
Just think of the economy as the flow of money. A hot economy is the result of money flowing around too quickly and too fast, this leads to inflation. To stop inflation you need to slow the flow of money. As more people become unemployed less money will flow.
The current bout of inflation seems to have been caused almost entirely by companies raising their prices.
Fair call there.
every bout of inflation is caused by companies raised their prices. Thats literally what inflation is…
I think the key distinction is between companies raising prices while their cogs are increasing, compared to companies raising prices because they think they can increase their margins.
Maybe we should just call it profiteering since some of those prices increases are above operating costs and inflation.
exactly. How is that companies making obscene billion dollar profits that are bigger than ever is a good thing yet people struggling to pay their mortgage, the car repayments, put food on the table, pay the electricity bill is OK..and the answer from RBA is just raise interest rates even higher and say lose your job? How about some thinking outside the box and put people before greed.
What is raising interest rate is an outdated tools that come with plenty of pain?
You can take money from people and park them in their supers, just as an example…I think it is certainly becoming more outdated.
You wander around new housing estates and in a street with 20 newly finished houses 10 of them instantly get "For Lease" signs put up in front of them.
Anyone who was already in a good financial position with thier house paid off it's not stopping them spending money at all.
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Interesting how people always focus on the demand side, but never the supply
Or the fact total money doubled in span of 3 years over covid from RBA printing. Everything is meant to double too, food, services and wages over 3 years.
Did your wage double? Otherwise who got the money?
Point is, hundreds of billions needs to get pulled out to stop the hyper inflation.
@orangetrain: Tax it out then. Easiest way is from those who have a lot of money that can be taxed away.
What? Inflations a lagging indicator. If you can’t reflect on how it started, how can you prevent it from getting worse/happening again.
Most gone to our $10T housing market.
Exactly. It was 7T before COVID.
The craziest of bull markets lead to people buying nfts for millions
It was the most hopeful and optimistic of times
Personally I think we're seeing alot of mania in a lot of sectors, it's almost unbelievable to the point that it's scary, something gotta give eventually and I think we may be getting close to the tipping point.
Otherwise who got the money?
- Banks
- People who sold/flipped a house during those 3 years
- Real estate agents
- State governments (stamp duty)
- Any business that lifted prices 30-100% (some products/services now cost twice what they used to)
Wow now Socialists finally realising property rights does carry real power and weight! What a twist of events!
Will they learn from this? Probably not, believing a freeze in rents will solve all their problems.
Did your wage double? Otherwise who got the money?
we all know the answer to that
Inflation is the measure of prices over time. High inflation is when prices are viewed as rising too quickly. People don't like this because it means it costs more to buy things in general. The government doesn't like this because voters are unhappy so they try to find the causes of inflation and fix these causes. One typical cause is demand. If demand for a particular good is high, in a capitalistic economy, sellers can increase prices (more profit for them). Sellers are already shifting lots of these goods so they can increase prices without affecting sales too much (already in high demand). In contrast, if sellers are finding it hard to sell a product, they can drop the price to encourage demand.
The government has two main tools (plus other smaller tools) for controlling the economy: (1) fiscal policy, ie, gov spending / taxes (2) monetary policy (basically interest rates via RBA). So raising interest rates has several effects: (1) people who borrow money have increased costs, therefore have less to spend. Therefore demand reduces and hopefully prices. (2) Businesses that borrow find their costs have increased. They can reduce prices but the demand is also falling (as people who borrow have less to spend). Businesses carry out cost cutting. This is happening now. One cost to cut is labour, ie, people are retrenched. Also without a job, unemployed need to reconsider their spending, so less demand should encourage lower prices.
Problem with increasing interest rates is that it mostly affects people who borrow. People who do not have a loan / mortgage are not directly impacted. Although if they see savings interest rates increase, they can save more (put it in a bank to earn interest) which means spending less so prices once again should fall with less people spending.
The government should also temper their spending (to reduce demand and prices) so as not to counteract the interest rate increases (fiscal policy).
There is also supply side economics (see Reaganomics for application in the US) which generally touches upon how supply impacts the economy and prices, as you have already mentioned, ie, supply constraints caused by the war, shipping problems, etc have caused prices to rise as less to go around at a given point in time.
Problem is that this gov's monetary and fiscal policies do not appear to be directly addressing (as far as I can see) inflation caused by supply side constraints.
Thanks. You're right, looks like the government's favorite tool to fight high inflation is through monetary policy, i.e. raising interest rates, rather than fiscal policy. Wonder for how far they can push with raising interest rates before recession, per this article?
The interest rate is just one of the knobs and dials the reserve bank can push to affect inflation. The other things they can do include raising the taxes (this will make you very unpopular and you will lose the next election), raise the medicare levy and lift the amount that employees pay into superannuation.
it's not easy to implement these types of policies: you have to push it through the parliament and also hope that it doesn't unfairly punish certain groups of people.
The interest rate increases for example, greatly punishes those who take on debt because they now owe more money to their bank, while it rewards those who are lending money to others.
You mean the government, not the reserve bank. The reserve bank has nothing to do with taxation policy.
@Tambani: Which is the reason we are here. The RBA is tasked with controlling inflation, they have a panel of 'experts', but are only allowed to control 1 thing.
So we have 0 interest rates during COVID > housing price boom > inflation.
Meanwhile both the liberal gov and Labor that followed sit back and do nothing because doing nothing doesn't get you bad press.
temporary increase of % wages into superannuation is a great solution. Its makes the majority of people shoulder the burden , instead of those with mortgages predominantly , takes spending power out of the population and puts money into peoples future instead of instead of into the profits of private corporations ( ie banks)
Monetary policy is done by the central bank (RBA).
Fiscal policy is done by the government.
https://www.investopedia.com/ask/answers/100314/whats-differ…And the RBA, despite its so-called policies having real financial consequences for millions of Australians, is 100% independent from the government? That just boggles my mind.
@AussieDaddy: The RBA should (in my opinion) be thought of as a fourth branch of government.
When people think of ‘Government’ they think of the legislative beach (ie, Canberra) but forget how judges and police are also branches of government.
I think the RBA forms a powerful forth branch of government that’s only started to have true power for a few decades, so our conceptual understanding (and education about it) needs to catch up
The RBA is owned by the Commonwealth of Australia. The governor and the deputy governor are appointed by the Treasurer.
@Transient: Is that where the government's involvement with the RBA ends, or it has any say in the RBA's monetary policies?
More people working means more income means more spending means more demand means more inflation. Reverse is true too. Fairly basic concept.