Australian Politics
Tuesday, December 14, 2021
Fear not: a bit of inflation is no bad thing
Jessica Irvine
This is a sophisticated presentation. Basically, inflation destroys people's savings, which is a very bad thing, but the writer below points out that other things tend to counteract that. Wages rise and stockmarket values rise.
But she is too optimistic. The principal protection that savers have is rising interest rates on their savings. And if interest rates rose in such a way as to give both a return on capital and an inflation counterbalance, that would be fine.
But with recent negigible interest rates being offered on savings, it is clear that interest rates often do neither of those things. So in practice inflation is a serious robber, hitting mostly small savers, The big fish have their money in the stockmarket, either directly or via index funds
Superannuation offers an "out" for the small saver but many superannuation funds are very poor performers, sometimes even giving negative returns
Concerns about inflation look set to dominate the global economic outlook in 2022.
But despite pandemic related shortages pushing up prices for some things like furniture, cars and fuel, the global inflation bogey man is more imagined than real, at this stage.
Financial markets, of course, love nothing more than a general fret-fest about rising prices. What investors are really scared about, however, is not that prices will rise, per se, but that they’ll rise either faster or slower than they’ve factored into their models for valuing shares.
For example, Americans found out on Friday they are facing the highest rate of consumer price inflation since 1982. Prices rose 6.8 per cent over the year to November, driven by higher fuel, food and housing prices. But sharemarkets rallied on the news, as it was in line with their expectations.
Workers, too, commonly fear inflation. Frustration with the rising “cost of living” is a perennial election issue. But again, if they stopped to think about it, it’s not actually inflation that workers fear, but that their wages might not rise fast enough to keep them ahead of the rising cost of living.
Of course, if inflation was such a terrible thing in and of itself, you’d expect governments would try to eradicate it altogether – to keep prices absolutely stable. But they don’t.
In fact, making sure that economies generate a bit of inflation is the explicit goal of central banks around the world. Our Reserve Bank, for example, has an explicit target to keep consumer prices rising at between 2 and 3 per cent on average, over time.
If inflation runs too high, you can be sure they’ll jack up interest rates to cool activity and prices. But if inflation dips too low – as it has in recent times - they’ll also intervene to cut lending rates to ensure people borrow and spend more to push up prices again. Importantly, they’ll also look through any temporary swings in prices and be guided by underlying trends.
I remember once asking a central banker why they didn’t just aim to keep prices stable. Why is inflation necessary at all?
The answer was essentially that a little bit of inflation is better than the alternative: of deflation. Deflation – a phenomenon where prices fall over time - is unambiguously bad.
When people think prices will be cheaper tomorrow, they will delay making purchases, leading to a widespread “consumer strike” which is bad for the economy.
Far better, then, to err on the side of running things too hot, than too cold.
A little bit of inflation also helps to lubricate the wheels of capitalism in various ways.
Let me explain.
If prices are not rising, it can be very noticeable when a company decides to lift prices for the goods or services they provide. If they face supply disruptions which increase their costs, however, companies may need to lift prices to maintain profitability. The alternative, if they can’t increase prices, could be to lay off workers or otherwise cut their wages bill.
So, an environment OF rising prices can help to provide the cover needed for companies to pass on higher costs to survive.
A bit of inflation can also help companies straining to reduce their wages bill by simply lifting worker wages by less than rising prices – i.e. deliver a real pay cut. That’s not great for workers, but nor is losing their job instead.
For borrowers, inflation can also be beneficial.
As we’re about to find out on Thursday in the mid-year budget update, the Australian government has accumulated significant debts during COVID.
It’s ok. We’ve done it before. And we’ll no doubt do it again. The answer to high levels of debt, historically, has been to simply let an expanding economy and rising inflation “inflate” away the real value of the debt incurred. That is, we should pursue policy settings which help the economy and prices to grow so fast, that the debt is worth less, in relative terms, tomorrow than it is today.
Mortgage holders also benefit if rising inflation pushes wages higher, reducing the size of their debt relative to their income.
Before COVID, of course, it had become clear workers lacked the degree of bargaining power they once had to push for higher wages, whether due to declining rates of unionisation, the rise of labour-replacing technologies or more competition from cheaper offshore workers.
But during COVID, I have observed a noticeable shift in thinking from our central bank to be even more determined to ensure workers get the pay rises they are due before interest rates are returned to more normal levels.
‘Remarkable’ recovery not enough to bring budget back to health
As governor Phil Lowe said on Tuesday, future interest rate rises “will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently”. Furthermore: “This is likely to take some time.” Get it?
Our Reserve Bank won’t be lifting official interest rates until it is confident workers are enjoying the sorts of pay rises that would also assist in meeting higher mortgage repayments.
And as we return to life pre-pandemic, that might still be some time away. You can relax about inflation for now.
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Macabre Qld crimes that show need for real life sentences
Retired judge Clive Wall is often asked why people don’t spend more time in jail. He was known as Judge Dread, because of his desire to put criminals in jail. Even in retirement, Clive Wall is vocal about the revolving door policy in Queensland courtrooms and prisons, saying victims are being forgotten, writes Peter Gleeson.
Retired District Court judge Clive Wall spends a fair bit of time at his Southport bowls club, and there is one question he is constantly asked – why are people not spending time in jail anymore?
Judge Wall – also known as Judge Dread because of his strong desire to jail criminals – believes people are “sick and tired’’ of the constant revolving door policy being applied to sentencing in Queensland.
“I think from a sentencing perspective, far too much onus is placed on the accused, rather than the victim or victims,’’ he says. “The balance has been tipped in the favour of the accused.’’
But what of the worst of the worst?
There are some crimes that grip a state and because of the wide publicity, become part of the criminal folklore in Queensland.
They are macabre, brutal and it is clear that the individual responsible has a dark, sinister side that is chilling and frightening.
The memories and images of those incidents, replayed over and over, are disturbing and it poses the question about whether they are mad or bad, or both.
Against that backdrop, surely it’s time to have a conversation about what constitutes a proper life sentence in Queensland?
Recently, we saw an application for parole from Barry Watts knocked back, 33 years after he and Valmae Beck murdered Sian Kingi at Noosa. She was just 12 at the time.
The parole board rejected the application, a trend likely to continue. When sentenced, the judge recommended no parole.
Watts abducted Sian Kingi, before raping, torturing and murdering the young girl who had been riding home from school. Would you want Watts out in society right now? Near your school? There are other notorious killers who are seared into the conscience of most Queenslanders.
Gerard Baden-Clay displayed an arrogance and indifference to killing his wife Allison that shocked hardened detectives. Lead investigator Mark Ainsworth was staggered at Baden-Clay’s nonchalance, revealing much about his personality. He is said to have little remorse.
Brett Peter Cowan abducted Daniel Morcombe from a bus stop and killed him near the Glasshouse Mountains. Cowan was convicted of the murder of the teenager and was sentenced to life in prison.
Max Sica was convicted of the brutal murders of three young siblings. He can apply for parole in 2047. Surely in these cases, where families and friends of the loved ones genuinely fear a return to society by these killers, life should mean life.
When you look at the history of these cases, the brutality of the killings, and the denial still in place, it must disqualify them from ever leaving prison.
Under the current judicial system, a judge can recommend no parole, but doesn’t have the legal carriage to enforce a term where the person dies in jail.
Judge Wall believes a “throw the key away’ mentality to heinous crimes would have strong support in Queensland. “The community would support life being life in extreme circumstances but it’s up to the politicians and they are a different breed,’’ he says.
Maybe it’s time we started thinking more about the pain and suffering of the victims and their families, rather than pander so much to the accused.
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A significant stoush has erupted over Australia’s migration plan, with a minister labelling Anthony Albanese as ‘weak’ for opposing it
Skilled migrants are a net benefit. But too many in the past -- particularly Muslims -- have been unskilled and welfare dependent
Australia will allow skilled migrants and students back into the country on December 15 after the emergence of the Omicron variant caused the government to put a two week pause on the reopening plan, which was due to come into effect on December 1.
Treasurer Josh Frydenberg revealed on Saturday they expected an extra 120,000 migrants than initially forecast in May last year to enter the country.
Mr Albanese told Sky News he wanted to prioritise giving Australians the skills to fill jobs. “We’ve become too reliant upon temporary migration rather than training Australians up for the jobs that are available,” he said.
Mr Tehan slammed Mr Albanese as “weak” for not backing the migration policy. “All the experience shows that (migration) actually helps with Australian jobs, because the more skills you have got the more businesses can operate, the more that they can employ, and if they can’t get access to those specialist skills often it means they can’t put extra jobs on,” he said.
“So it’s a matter of getting the policies right.
“And Anthony Albanese, we don’t know what he actually stands for.
“He sort of, he says one thing one day, he says one thing another.
“What we do know is that he is pretty weak when it comes to these types of of decisions and what he says one day does not mean that that’s what he’ll do the next.”
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Black sheep finally finds place in wool industry, thanks to consumer thirst for all-natural fibres
Most wool growers try very hard to keep black wool out of their flocks. But some farmers have been bucking that trend and are purposely breeding black merino sheep.
Black or coloured wool does not need to be dyed and with demand growing for all-natural products, the one-time outcasts of the flock have become hot property.
Sophie and Tom Holt run nearly 30,000 sheep at Coonong Station in the Riverina.
Ms Holt started a separate black merino flock and has been processing their wool in Australia, running a wool retail business with her two friends Maggie Lahore and Kimmy Falls.
Ms Lahore was a station hand at Coonong and now works remotely in the business from her home in Argentina, while Ms Falls runs a livestock transport company in the Riverina with her husband.
"We're three working mothers and three good friends, who had an idea to process coloured and white wool domestically," Ms Holt said.
Early on, they were told it could not be done with much of Australia's wool processed overseas.
But they have since found processors to work with, their black wool products are running out the door, with blankets selling for more than $500.
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Also see my other blogs. Main ones below:
http://dissectleft.blogspot.com (DISSECTING LEFTISM -- daily)
http://antigreen.blogspot.com (GREENIE WATCH)
http://pcwatch.blogspot.com (POLITICAL CORRECTNESS WATCH)
http://edwatch.blogspot.com (EDUCATION WATCH)
http://snorphty.blogspot.com/ (TONGUE-TIED)
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