Indeed the RBA's targetting of the consumer sector and retail to make way for the mining boom suggests that the question of why Australia seems a natural oligopoly may rest at their feet. That is, Central Bank action - by driving small business to the wall - entrenches the power of the big players over the longer term as they have the critical mass and equity buffer to wear a quarter, a year or more of downturn wheras small business often does not. Sure we may not lose too many businesses in a "net" sense but they can never compete with the big guys.
One of our favourite Economists, Bill Mitchell of Newcastle Uni, has taken them to task quite brilliantly in what we believe is a must read for any interested party.( http://bilbo.economicoutlook.net/blog/?p=12184#more-12184 ). Here is just a little of Bill's take on monetary policy:
For monetary policy to be “effective” it has to really damage the real economy in a significant way because it is such a non-targetted tool – it impacts broadly across the spending stream. It is far better to address specific sector price movements using fiscal policy which can zero in on the basics driving the bubble without damaging the rest of the economy.
The probable best conclusion is that monetary policy is mostly a very ineffective means of managing aggregate demand. It is subject to complex distributional impacts (for example, creditors and those on fixed incomes gain while debtors lose) which no-one is really sure about. It cannot be regionally targeted. It cannot be enriched with offsets to suit equity goals.The RBA is driving the rest of the economy into a hole that mining has dug on the expectation that if they dont then mining will ignite an inflationary pulse. So why not deal with the cause not the effect?
Its fair to say that even those of us who have been RBA watching for a few decades are confused by their current rhetoric. We get the fact that the RBA reckons its right with their outlook on inflation but everything we look at suggests the pressure in the next 12 months will be for lower interest rates. We get the conventional wisdom that the terms of trade shock should feed through to consumer spending but with mining such a small sector of the total employment market and with Australian Households labouring under a record debt burden we think the behaviours this time won't fulfill the expectation. And we think its disengenous to simply say the RBA will just cut rates if they're wrong.
We think there should be a renewed debate about mining and the distortion it is causing in the Australian economy. The coalition and the miners did a great scare mongering campaign on the RSPT but why shouldn't the miners contribute more to the rest of the economy which has to wear higher interest rates to make way for their burgeoning waist lines.
Indeed the other 90-95% of the economy deserves more of a return than just the company tax rate for what is an exhaustable resource. And the idea that projects will go elsewhere doesn't matter. The dirt and rocks remains in the groud for exploitation, sorry exploration, at a later date, probably when prices rise and the resource is more scarce. So whether miners pay more tax or they leave the dirt and rocks in the ground Australia gets a net positive benefit either way over the long run.
With the RSPT we get a rent on the resource taken out, but we should also get a debate about how fair it is that Australian Households should pay higher interest rates so BHP can buy Potash. We should also get a debate about whether its fair that small business is ground down at the alter of mining and an apparent adherance to a theoretical NAIRU and perhaps we might end up, after all of this, with an economy that isn't exposed to Chinese policy mistakes or reversals.
Whatever the question the answer is we need a proper debate on Mining's benefits in the short and long run for the economy and citizens of Australia. To us this is a much bigger issue then Bank profits.
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