What should the RBA be doing?

My son called the other day to say I’d been mentioned in the Fin as a possible candidate for the the Board of the Reserve Bank. If I were a serious contender, this would be the cue for me to adopt a pose of grave silence on all policy issues, interspersed by gnomic observations to be pored over for their inner meaning. I’m not a serious contender (even if it’s nice to be thought of as someone who might be) so this seems to be a good time for unsolicited advice to whoever gets appointed.

In the short term, I’m pretty happy with the settings of macroeconomic policy. The Rudd government and the RBA got the monetary and fiscal stimulus right in 2009, and the move back to fiscal surplus and neutral settings for monetary policy has been paced appropriately (the government’s insistence on relying on spending cuts rather than scrapping the last stage of the tax cuts promised in 2007 was a big mistake in terms of budget policy, but that’s a different issue).

My concern is rather with longer-term issues arising from the GFC. First, it no longer makes sense to separate monetary and fiscal policy as sharply as was done in the pre-2007 period, given that, in any real emergency, the two will have to work together. That doesn’t imply doing away with central bank independence (we’ve had an independent central bank since the RBA was established) but it does imply a degree of co-ordination between RBA and Treasury more like the relationship that prevailed before the 1990s.

Second, the inflation targeting approach, based on Taylor rules, failed globally in the leadup to the crisis and during the crisis. An important lesson (which Stephen Bell and I, among others, pointed out before the crisis) is that low and stable inflation rates do not imply a stable economy. In fact, they may contribute to the growth of asset price bubbles (what Minsky terms the shift from hedge to speculative finance). There’s still a lot of room for discussion about what should replace inflation targeting, but full employment needs to be given more weight than in the past.

Third, the separation between monetary policy and prudential policy needs to be re-examined. Everything went well in Australia, but the problems overseas suggest we need to take another look at this.

Campbell’s cockamamie campaign

Brisbane Lord Mayor ‘Concrete’ Campbell Newman has announced that he wants to be State Premier, but is not prepared to give up his current job to run for the office. Rather, he plans to run for a seat at the next election, then challenge for the leadership of the LNP, which, he hopes will have a majority. Like Malcolm McKerras and others, I’m bemused by this strategy. What is the Parliamentary LNP supposed to do between now and the next election, and what kind of campaign can be run on this basis? Will there be two policy speeches?

Supposing that Newman has majority support in the Parliamentary LNP, their best option would seem to be deposing the current leader Langbroek (no great loss there, admittedly) and replacing him with someone willing to act as a stand-in. That would be a pretty miserable position to occupy (imagine the fun the government will have with it) but perhaps someone can be found to do it. The situation in the City Council will be similarly farcical, giving Labor a chance of regaining its majority.

However, I suspect that reality will sink in soon, and that this cockamamie idea will be abandoned. Either Newman will back away from state politics or he’ll have to follow the standard route in such circumstances finding someone willing to stand aside and create a by-election.

Between the successful management of floods and this farce, a Bligh government that seemed doomed (deservedly so in my view) now looks to have a good chance of retaining office.

Update It looks as if they are going with the “stand-in” plan, with Jeff Seeney as the bunny. Both Langbroek and Springborg have quit. Seeney certainly won’t outshine Newman, but he can still do the LNP plenty of damage. I still predict Newman will be forced to run for a seat in Parliament before long. Perhaps one of the departing leadership team will be kind enough to make way for him, but I wouldn’t count on it.

The chain of scientific authority

Noted scientist Andrew Bolt assures us that exposure to radioactivity is beneficial. His source is creation scientist Ann Coulter, who in turn relies on all-round scientific expert Tom Bethell, whose Incorrect Guide to Science[1] rejects scientific correctness on radiation, evolution, climate change, DDT, AIDS and many other topics. As far as I know, none of these experts has ever studied any scientific subject at a level higher than high school, which guarantees that they haven’t been infected by the subversive influence of correctness in science (or, for that matter, any other topic).

(Hat tip, Tim Lambert, who points to one of those correct scientists, PZ Myers)

fn1. The full title says “Politically Incorrect”, but this is a bit redundant. No doubt politics are the reason for Bethells incorrectness on science, but that’s true of all his incorrect opinions.

Yemen

Dramatic events in Libya have overshadowed the murder, by government snipers, of unarmed demonstrators in Yemen on Friday. This crime is as bad as any of those for which Gaddafi has been condemned, but has so far not produced a comparable response from the US and other Western governments. To be fair, there was a similarly cautious response to the initial reports of government repression in Libya and Egypt, so it’s a bit early to be convicting Obama and others of hypocrisy on this.

However, with government ministers resigning or being sacked, and a state of emergency announced, the familiar script seems to be playing out a bit faster. The Saleh regime clearly can’t survive without at least tacit support from the US, so it’s time for Obama to announce the withdrawal of that support, and tell Saleh to leave in the same terms as with Gaddafi.

On the face of it, there should be no problem for the US Administration here. Saleh has been a useful ally, but far less important than Mubarak, whom they dumped without too much concern. The big problem is that after Yemen comes Bahrain. With the Saudis having sent troops to suppress the revolt there, a democratic revolution in Bahrain will threaten their regime as well.

Howled down in a pomo world

Deirdre Macken has a great piece on today’s Fin, riffing off Cardinal “I spend a lot of time studying this stuff” Pell to the general issue of the challenge to expertise in both productive (Wikipedia) and unproductive (climate science rejectionism) forms. Paywalled unfortunately, but here’s the link for anyone who can use it.

Macken, correctly I think, points to postmodernism as a contributor to the process. I’ve discussed this before (do a search) and I know it’s more complicated than that, but the vulgarised version of postmodernism as denying any special status to scientific knowledge as compared to other “knowledges” has certainly been embraced on the political right in a way that few of its original proponents could have anticipated.