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Friday, December 19, 2008

Price stability to be at the cost of full employment


On Wednesday, the Government signed another Policy Target Agreement with the Reserve Bank. It is still based on price stability and inflation is still to be kept at 1-3 percent over the medium term. But instead of "full employment" and "equitable distribution of income", the Government wants to promote a "growing, open and competitive economy as the best means of delivering permanently higher incomes and living standards".

So social objectives for all go out the window in favour of stronger economic objectives that benefit the few. Given that economic growth is expected to be zero in the short to medium term, I fail to see how the PTA will lead to economic growth. So not many are going to get permanently higher incomes and living standards unless they are MPs or judges.

Given that unemployment and inflation are trade-offs, and unemployment is to go up - does this mean that the Reserve Bank is to use unemployment to keep inflation down again. If so, that`ll be the explanation for the removal of "full employment" from the PTA.

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Scoopit!

3 Comments:

Blogger Adolf Fiinkensein said...

Dave, surely you aren't really a fuckwit? The Treasury projections for 'no growth' assume a continuation of the Labour Party's policy settings.

December 19, 2008 at 5:58 PM  
Blogger Dave said...

...policy settings which, in effect, if not in word, will be continued under a National govt as it is pretty hard to be more productive with a smaller and decreasing workforce.

December 19, 2008 at 6:38 PM  
Anonymous Mark said...

Unemployment and inflation are not trade-offs, just ask Zimbabwe.

In this country inflation falling has nothing to do with rising unemployment, unemployment was caused by wasteful spending of the Labour government that crowded out investment and productivity growth.

We therefore become more inefficent than our trading partners.

The only reason we haven't noticed was NZ went on a credit fuelled spending binge, which will make our reccession longer and deeper than the rest of the OECD.

December 22, 2008 at 3:47 PM  

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