One thing interesting about Q and A last night was Tony Jones’ somewhat provocative questioning of Joe Hockey about fiscal policy as a method of stimulating the economy if monetary policy and cutting interest rates no longer work.
While Mr Jones did not dwell on the point, it was almost as though he has been reading up in the blogosphere, on the likely implications for economic policy when monetary policy – aka the Household Debt Machine – runs out of gas.
Up until quite recently Australian journos would not have pushed the issue of running routine fiscal deficits to support demand on the assumption that suggesting a positive role for fiscal policy was a sign of a 1970s economic policy dinosaur. Fiscal policy in the modern era has become something that is only used to save banks when they blow themselves up with poorly managed loan books.
It is starting to appear that the very tepid effort last week by Mr Lowe of the RBA on the limits of monetary policy (which he did not really concede) has allowed some new patterns of thought into the ageing cerebellums of our mainstream media. Which of course is a good thing and should be encouraged – keep munching on those Goiji berries and Krill oil extracts folks.
If there is a serious discussion about fiscal policy funded (bond sales) or unfunded (printed) rising from the deeps of the interwebs to challenge the crumbling neo-liberal orthodoxy, the assumption of low interest rates from here to eternity is suspect.
Inflation is not extinct – it just needs money in the hands of people who will spend it. With debt deflation pressures rising a new era of fiscal deficits is not an option – it is a certainty. At least for politicians not interested in subjecting the country to the Old Testament pain and suffering that is inevitable if debt deflation is allowed to run loose.
Yes still very early days but I detect some of the seeds of the unorthodox economic blogosphere taking root in formerly sterile fields.