NOTE: This post edited has been edited.
Reading the papers this morning, from the Canberra Times we have:
- “First home in historic times.” An attractive young lady is very happy that she’s got a new home, and it’s much more affordable because of historically low interest rates. No mention of why the RBA felt it necessary to cut interest rates to historically low levels
- “Abbott vow to cut company tax: $2.5b a year sweetener to secure the business vote.” Do businesses vote?
In the Australian we have:
- “Slowdown cuts rates to record” – clearly following the Coalition line that the interest rates are so low due to economic problems
- “Abbott’s $5bn company tax relief soothes the parental leave sting”. Not portraying it as a grab for votes
One of the problems I have is that neither appear particularly thoughtful. On interest rates, I’d like to see an article that explains what drives interest rates. They’re driven by expectations of inflation, as that’s the RBA’s primary target. A subsidiary target is economic performance.
So, interest rates go up usually when the RBA is worried about inflation. They typically get worried about inflation when we have very low unemployment, or when we have a lot of expansionary fiscal policy (i.e. high government spending).
Interest rates tend to go down when the RBA isn’t worried about those two things, or when the economy is in the tank and the RBA is worried about deflation.
So, when we used to argue about interest rates, the argument from the right was that the high government spending of Labor would push up interest rates. Which was actually true. But now that the economy isn’t doing so well, the interest rates coming down is only because people are out of work. If you asked people whether they’d rather have a job and higher interest rates, or no job and lower interest rates, I think I know which they’d say.
Edit: I’ll shift my comments that were here before to point out that the newspapers have a tradition of interviewing people, then using that story for their own ends without necessarily thinking about the impact on the person concerned. I am also guilty of having done that, and I’ve edited my post to remove that content.