The Dog’s Bollocks

Truth is like a dog’s bollocks – pretty obvious if you care to look.

Day 20 – We can’t control interest rates but we control them better than Labor

Bruce PettyAfter a week highlighted by Gaffes from both Team Howard and Kevin07, interest is turning to this week’s anticipated interest rate rise. Team Howard have decided that an offensive on interest rates is the best form of defense, although, like much of Team Howard’s campaign strategy it is not a strategy without risk – containing, as it does, contradictory and confusing messages.

The Team Howard narrative is that they are not to blame for an increase in interest rates because of factors beyond their control – the drought and oil prices – but they are the team best suited to manage the economy and keep rate rises to a minimum by keeping wages under control.

We can’t control interest rates but we can control them better than Labor.

Hmm…

Yet all economists, and the Reserve Bank, are arguing that Team Howard’s hoard and spend budget strategy over a number of years has been, and remains, intrinsically inflationary as $billions in cash are regularly injected into the economy driving consumer consumption. Wage pressures on inflation will continue primarily because of the shortage of skilled workers and other capacity constraints in an economy with declining productivity – a direct consequence of Team Howard’s long term disinvestment in education and capacity building. Team Howard’s strategy to counter wage inflation is Work Choices and the expectation that it will deliver wage increases based only on productivity improvements. In times of labour shortages, productivity increases will not keep wages low – competition will drive them up, and it’s arguable how much blood one can get from an already anaemic stone. It’s a classic supply and demand economic dynamic.

Election promises heading towards $50 billion are also up against capacity constraints. Assuming the government can actually spend such vast amounts of money on roads and health initiatives in the promised time frame where will all the workers. doctors, nurses, professionals and skilled workers actually come from in an economy operating at capacity?

Our Trillion Dollar Ferrari is blowing a bit smoke on the uphill climb.

Cross-posted at Blogotariat.

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Filed under: Ass Hattery, Economics, Federal Election 2007, Politics

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The Dog’s Bollocks

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