The Letter from The Cape Episode 9 June 16, 2023 Hello, here is another Letter from The Cape. Qu’ils mangent de la brioche. When the French philosopher Jean-Jacques Rousseau published his 1790 autobiographical book – Confessions – he recounted the story of a “great princess” who “when told that the peasants had no bread, replied "Qu’ils mangent de la brioche" - Then let them each brioche or 'Let them eat cake'. The 'great princess' is often identified as the last Queen of France, Marie Antoinette, although that attribution is clearly wrong given she was aged nine at the time the quote entered the lexicon and had not even ventured to France from Austria by then. But the general intent of Rousseau in recounting the story was to illustrate the sheer disdain that the elites had for the workers, the poor, for those who struggle to make ends meet. The elites are still with us and still exhibit this disdain. I thought about Rousseau’s Confessions recently when the governor of the Reserve Bank of Australia made several extraordinary intrusions into the public sphere. Australia's housing and rental crisis has been largely caused by a lack of investment in social housing by governments who thought pursuing surpluses was a demonstration of their fiscal credibility. Further, the current rental crisis is being exacerbated by the RBA interest rate hikes themselves, which are pushing up mortgage rates and prompting landlords to increase rents, which are a significant weight in the Consumer Price Index. This has created a vicious cycle - interest rates rise, rents rise, inflation rises, interest rate rises - and so it goes. Recently, the RBA governor tried to divert our attention from his culpability by claiming that we have adopted excessive lifestyles because we don’t crowd enough people into our houses. He demonstrated his disdain for those enduring the housing crisis by telling them to move back home with their parents or to take in more flatmates in their rental accommodation. Don't forget that the governor himself was able to purchase his big house in inner Sydney in the 1990s courtesy of a home loan provided by the RBA itself which was offered at half the standard variable rate. Qu’ils mangent de la brioche. The governor also claimed that workers should not pursue wage rises because - quote - “we have to make sure that higher inflation doesn’t translate into higher wages for everybody”. This is despite workers enduring massive real purchasing power losses while watching their bosses pocket salary increases of over 15 per cent in the last year. Qu’ils mangent de la brioche. The peasantry now, on balance, are not in as desperate circumstances as they were in the 18th century when Rousseau recounted the story, but the willingness of the top-end-of-town to improve their positions and power at the expense of the rest of us remains the central dynamic of our society. Yesterday, the Australian Bureau of Statistics released data that showed that employment was up and unemployment down. Normally, we would consider that a good thing, notwithstanding the decline in employment security and working conditions over the last three decades of neoliberalism. The mainstream media reacted to the news with headlines that the RBA will just have to hike interest rates further. Think about that. In the decades after the Second World War, government took on the responsibility to ensure there were enough jobs for all those who desired to work and unemployment was very low. We considered unemployment to be a policy target - an aspiration of policy - to be kept to very low levels where essentially the measured unemployed were just people moving from one job to another. The reason for that commitment by government was simple. Unemployment ravages societal well-being and destroys individual self-esteem, family continuity and undermines mental and physical health. Children who grow up in jobless households are shown by research to take the disadvantage of their parents into their adult lives - perpetuating the disadvantage across generations. Government should do everything to prevent unemployment from rising and they can always provide jobs themselves if there are insufficient jobs in the non-government sector. But now, policy makers view unemployment not as a policy target, but, rather, as a policy tool to be used to discipline inflation. The RBA is doing exactly that now - and will not be happy until it has driven the unemployment rate up and used the unemployed as fodder in their misguided policy caprice. Despite the inflationary pressures being due to so-called supply-side factors arising out of Covid, the war in Ukraine and OPEC oil greed, the RBA is acting as if there is too much spending in the economy and they think that is because unemployment is too low. However, even if there was too much spending in the economy relative to the productive capacity to produce goods and services, monetary policy - adjusting interest rates up and down - is a very imperfect policy tool for manipulating spending. There are winners and losers - debtors lose and may cut their spending, while creditors and those with financial assets win and may increase their spending. The RBA has no idea what the net outcome of this will be nor when the different impacts will emerge. The problem then is that their flawed logic leads them to view this week's fall in unemployment as a trigger for higher inflation and so they will go even harder until the losers are forced into unemployment, poverty, and businesses start failing as the nation plunges into recession. The costs of that decline are disproportionately borne by those who lose their jobs and those that lose their houses through mortgage default. All of which is unnecessary given that inflation is falling anyway because the factors driving it, which are not sensitive to RBA interest rate hikes, are abating. But then the RBA governor and the other board members are unlikely to endure any material pain. Qu’ils mangent de la brioche. I will be back next time. Until then, see ya later and take care.