Answers are in economic history

In 1960, the Reserve Bank of Australia began operations. An appointed Reserve Bank Board chaired by the RBA Governor became responsible for conducting monetary and banking policy that contributed to the stability of the currency, full employment, economic prosperity, and welfare of the Australian people. Whilst monetary policy was set by the Commonwealth treasurer in the annual Budget, the RBA became officially the center of applied monetary policy in Australia on a day-by-day basis

Modern Monetary Policy

Structural Change to applied monetary policy began in 1983 with the floating of the Australian currency. Whilst the Government continued to set monetary policy direction and stance in the Budget, the role of the RBA remained central to both applied monetary policy and exchange rate policy on a day-to-day basis. In 1996, the RBA and its unelected Board were officially granted independence to determine and manage monetary policy and the value of the currency.

The goals of monetary policy require the RBA Board to conduct monetary policy outlined in the 1996 Statement Conduct of Monetary Policy. The framework allows the RBA Board to focus on price stability (currency) considered critical for long term economic growth and employment whilst recognizing policy impact upon short term levels of employment. Both the Government and RBA agreed on the importance of low and stable employment. The medium-term policy objective was to be an inflation target of between 2%-3% movement in the CPI. The key to inflation management then became inflationary expectations and disciplined fiscal policy.

Inflationary Expectations

Determination of policy direction and stance to manage inflationary expectations requires the RBA to achieve the lowest rate of unemployment without fueling wage growth sufficiently to stimulate inflation. This measure of unemployment known as NAIRU or "non-accelerating inflation rate of unemployment" is similar to monetarism's natural rate of unemployment.

The inflation augmented Phillips Curve underwrites both the natural rate of unemployment and NAIRU. Over the long run there is no trade-off between unemployment and inflation. However, over the short term, wage demands driven by expectations of inflation drive wage demands which are assumed to flow into current cost driven inflation. Estimating the divergence between NAIRU and the actual unemployment rate then becomes central to policy direction and stance. Economic modelling provides the necessary estimate of the short run Phillips Curve relationship between actual unemployment and the assumed NAIRU.

Education and training become an important fiscal policy strategy that supports RBA inflation targeting. The fiscal policy strategy assumes that under a flexible labour market, appropriately trained labour will continually lower the natural rate of unemployment. Full employment of the labour force becomes possible then through skills enhancement of the labour force. This is of course simply a reaffirmation of Professor Pigou's 1927 modern restatement of Say's Law of Markets[xi]. More importantly, fiscal policy applied to training of the labour force to support inflation targeting means monetary policy effectively captures fiscal policy.

Structural Reform

Following the collapse of the Bretton Woods international monetary system in 1971, a belief in the market mechanism returned. Whilst associated with monetarism, these features were prominent

• No industry policy which required withdrawal of constraints and subsidies, privatisation, and abolition of controls

• Withdrawal of government involvement in wage determination
• Curb on trade union power.

The model became known as Thatcherism in Britain which Hawke and Keating brought to Australia. Clearly, the historic written protectionist Australian Constitution was a stumbling block to implementation of globalised market theories. However, successive Governments: Hawke, Keating, Howard, supported by commentators across industry, media, and academia successfully sold the return to nineteenth century capitalism as supply side structural reform complete with the underlying assumption that the world is one single market i.e. globalisation.

The baby boomer and Gen Z generations willingly bought the return to the economic philosophy of pre-Federation. Market capitalism replaced the mixed economic system implicit in the Australian Constitution. The social justice preamble to Section 51 of the Constitution became meaningless as clever politics stepped around the interventionist Constitution by signing international treaties which were in turn used to render inoperative the protectionist provision deliberately included in the Constitution.

Conclusions

The problem now is generational change. The millennium generation concerned with climate change will require government intervention and support for industries, regions, business, and employment. Political parties tied to entrenched baby boomer economic philosophy of market theory must continue to fare badly at the hands of voters.

What emerges in this discussion is that the withdrawal of government from economic management is now a political liability. The message is that baby boomer political philosophy must accept change and return economic policy arms to Government. The written Australian Constitution will accommodate such a change in political philosophy.