Reserve Bank's 'stabilisation': still chaos

In honour of the Reserve Bank's admission this morning of their own blithering incompetence, I wore my favourite anti-monetarist shirt to work. Its point is that the so-called stabilisers of prices create instead more chaos from their incessant boom and bust programme — first overheating, then withdrawing the heat, then resiling and trying to re-heat again.

No to mention that they don't even know what they don't know.

From May to August, the Reserve Bank undertook what Michael Reddell calls "a huge shift" — "from a “hawkish hold” (best guess, no easing until this time next year, and possibly some tightening late this year) to not only an OCR cut now, but a really large (at peak 130 basis points) change in the projected forward track for the OCR."

Do you think they know what they are doing?

"There has been no nasty external shock in that time (global financial crisis, pandemic, collapse in commodity prices etc) ... . I can’t recall another change that large that quickly, in the absence of a major external shock, in the 27 years since the Bank started publishing these forward tracks."

So why did they cut now, when price inflation is still out there, when three months ago they insisted they wouldn't, and couldn't?

"It was simply because Orr and the Monetary Policy Committee [at the Bank] badly misread how the economy was unfolding now ... Other commentators have used the label 'U-turn.' I prefer flip-flop myself."

I'd suggest it's the simple incompetence of the monetary stabilisers, tilting at the same old windmills with the hope of a different result. The programme of the stabilisers ("we know how to put inflation back into the bottle" they crow, then prove they can produce only the destruction of boom and bust) has always and everywhere been destructive. Hayek nailed the stabilisers decades ago, placing the blame for “the exceptional severity and duration of the Great Depression” squarely on central banks’ “experiment” in “forced credit expansion” first to stabilise prices and then to combat the resulting depression.

Hayek defiantly declared: “We must not forget that ... monetary policy all over the world has followed the advice of the stabilisers. It is high time that their influence, which has already done harm enough, should be overthrown.”

It's the kind of thing you need nailed up above the Reserve Bank's door. At least some of us have it on the back of a shirt.