It has, however, chosen to regard 5% unemployment as the natural rate of unemployment (NAIRU) and continues to use the plight of the unemployed (the Phillips Curve) as a weapon on behalf of the wealth owners against the interests of those who get even less than the pensioners of then nation. Currently single unemployment benefit recipients are forced to live on $35 a day – $135 per week less than pensioners and a fraction of what is regarded as a fair minimum wage of $606.40 per week.
An important element of this approach is the concept of a nonaccelerating inflation rate of unemployment, or NAIRU. As its name suggests, NAIRU is supposed to be an unemployment rate (or range of unemployment rates) that produces a stable rate of inflation: if the unemployment rate is lower than the NAIRU, the inflation rate will tend to rise, and vice versa. This fails to take into account the length of time that people have been unemployed or regional differences in labour market opportunities.
Although the NAIRU is alive and well in the media and among economic policymakers, it is no longer very popular among academic economists. It has fallen out of favour partly because its conceptual foundation is weak and partly because its empirical track record does not inspire confidence. Its survival is due largely to the fact that economists have not been able to reach any consensus about alternative guides for monetary policy.
As Bruce Chapman and Richard Blandy pointed out a decade ago, an alternative policy needs consideration. The costs of “steady as she goes” are very high, for the current long-term unemployment, and the contemporary and future prospects for the operation of the macro-economy.
The higher the proportion of the alternative labour supply that does not matter to the expansion plans of employers , the greater is the prospect that there will be a million ‘Australiens’ – an alienated, socially isolated source of despair and costly preventable chronic disease.
The AFR stated on August 4, when it lauded Glenn Stevens as the man who really runs Australia:
“The RBA remains: constituted under 53-year-old statutes; an old-fashioned, strongly hierarchical, mainly male mandarinate in an increasingly rancorous democracy; the epitome of gradualism and continuity in an Australian governance terrain of creaking portfolios.”
Glenn and his colleagues must take the opportunity to restore the integrity of the original three-point charter of the RBA. Small business, in particular, needs a real cut in its costs of capital and a substantial improvement in consumer demand to find ways to take on the millions seeking jobs.
