Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 405

It's not all about interest rates: give me a 1980s petshop galah!

The notion that the RBA ‘chooses to allow’ the ‘voluntary unemployment’ of several hundred thousand Australians is something that may come as a surprise to many. Yet that is precisely the charge levelled at the central bank in a tome from economist Ross Garnaut. He claims that such unemployment was a consequence of the RBA running monetary policy too tight after 2012.

Now Ross Garnaut is no slouch. He was a senior economic adviser to then PM Bob Hawke during the 1980s and has written extensively and thoughtfully on economic policy issues for decades.

However, the charge against the RBA is largely a specious one.

For one thing, the average monthly unemployment rate from February 1978 (when the current series was commenced) to the end of 2012 was 7.0%. From that point to the onset of the pandemic it was 5.6%.

It might be interesting to find out who Garnaut puts in the frame for the even greater levels of ‘voluntary unemployment’ in the decades prior to 2012.

It's not only about monetary policy

Of course, hindsight is a wonderful thing, and the RBA may have run monetary policy a little too firmly after 2012. It is also probably true that the time has come to move on from inflation targeting as the overarching focus for monetary policy. Perhaps to one that explicitly embraces, among other things, an employment objective.

In the scheme of things, the RBA’s ‘culpability’ for unemployment levels is not deserved of the prominence that Garnaut and others give it. That prominence derives from an unbridled but misplaced faith in the efficacy of macro policy and a corresponding reluctance to consider structural measures that enhance the economy’s flexibility and adaptability.

The political wherewithal to consider such measures reached their apogee under the banner of ‘microeconomic reform’ during Paul Keating’s Treasurership.

By the late 1980s, as the then Treasurer put it, “every galah in the petshop was talking about microeconomic reform”. That agenda extended through the 1990s during his Prime Ministership and into the early stages of the Howard Government. (To be fair to Garnaut, he does canvass, albeit selectively, some measures of this nature.)

Where are the microeconomic reforms?

It was those type of microeconomic reforms, including measures to enhance labour market flexibility, that drove the ‘natural’ rate of unemployment lower, to the ‘4 point something’ now articulated by RBA Governor Lowe as a potential ‘natural’ rate, or perhaps even as low as the 3.5% Garnaut now posits.

But the current tacit refusal of both sides of politics not only to assign such ‘microeconomic reform’ measures to the ‘too hard’ basket, but in some cases reverse those reforms, looms as a bigger potential culprit in occasioning higher unemployment than any ‘failure’ to adequately fine-tune macro or monetary policy.

For the most part, however, every galah in the petshop now persists in talking about nothing else other than how an (easier) twist in monetary policy, including a turn to the ‘unconventional’, is a pivotal part of a panacea for our perceived economic ills.

But monetary policy is limited in what it can achieve and should be just one increasingly minor part of the overall policy armoury. Key global central bankers, including Governor Lowe, have been trying to tell markets, governments and academia this very fact for some time – apparently to little avail.

Meanwhile, historically high levels of monetary accommodation have unleashed a plethora of ‘unintended consequences’, such as asset bubbles and growing wealth inequality, excessive risk-taking and attendant financial stability concerns. Easy liquidity sets ‘moral hazard’ traps that debilitate economic performance by allowing ‘zombie’ companies to persist, ultimately delaying necessary economic adjustment and lowering the economy’s growth path by inhibiting its productivity, flexibility and dynamism.

That is not to say there is no role for macro policy in a post-pandemic environment. But an assessment of that role should include a revisiting of the objectives of monetary policy and, more importantly, a recognition of its limitations.

We need to use all arms of economic policy

Central banks, including the RBA, are not perfect. The galahs in the pet shop – gratuitously - remind us of this all too often. But central banks need support from, and need to support, other arms of economic policy.

So, I do wish - just occasionally - that those aged petshop galahs would sometimes advance an advocacy of the agenda that they pushed in the 1980s. An agenda that ultimately set up Australia for a globally unprecedented three-decade long expansion and one that has the best chance of navigating the economy safely to and through the post-pandemic world.

 

Stephen Miller is an Investment Strategy Consultant with GSFM, a sponsor of Firstlinks. He has previously worked in The Treasury and in the offoce of the then Treasurer, Paul Keating, from 1983-88. The views expressed are his own and do not consider the circumstances of any investor.

 

 

  •   28 April 2021
  • 1
  •      
  •   

RELATED ARTICLES

A tale of the inflation genie, the Fed and the RBA

US rate rises would challenge multi-asset diversified portfolios

Yikes! Three critical factors acting on inflation and rates

banner

Most viewed in recent weeks

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Welcome to Firstlinks Edition 674 with weekend update

What begins as appetite, grows into excess and ultimately ends in spectacle. Millions of investors just discovered this the hard way.

  • 6 August 2026

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Latest Updates

Retirement

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

SMSF strategies

Who really loses from the SMSF borrowing ban?

The ban on borrowing to buy residential property inside a self-managed super fund was framed as closing a loophole for the wealthy. Yet ATO data suggests its effects may be felt more heavily on members with moderate balances.

Investment strategies

The investing rule that explains the next market crash

What if investment success depends less on picking the right assets and more on understanding the decisions of other investors? A principle borrowed from game theory offers a different perspective on markets.

Investment strategies

Gold: should you own the metal or the miners?

Gold is back in the headlines but investors may be asking the wrong question. Before deciding where prices are headed next, it's worth considering whether the investment you choose will deliver the outcome you're actually seeking.

Fixed interest

Global bonds markets are hiccupping

For decades, investors looked the other way as government debt ballooned. But a reckoning may be beginning. Bond markets are stirring and the consequences could reach far beyond markets into everyday life.

Property

Why investors are looking beyond traditional property sectors

A little-known corner of the property market may be quietly benefiting from powerful demographic and healthcare trends. Could this specialised sector offer investors something increasingly difficult to find: enduring demand?

Retirement

Retirement in reality - 6 months in

Is retirement really an identity crisis, or is something else at play? New insights challenge conventional thinking and reveal why some retirees struggle to fully embrace life after work.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.