Australian Lefty on Politics, Governance, Science and Info Management

Paul Kelly focuses on half of the equation

Posted by Dave Bath on 2007-08-17

Paul Kelly’s biases are showing in Rudd clueless on economy (The Australian, 2007-08-15).  Kelly talks of inflation only in terms of the risk of wages rising under Rudd beyond what Kelly considers a ridiculously high 3% per annum.

Kelly puts the following question as if it addresses the sole reason for price increases:

The question is both elemental yet subtle. How does Labor fashion a new governing model in this situation?  With higher inflation, higher interest and a pledge to re-cast power in the industrial system, can Labor keep wages within the 4 per cent range?

Kelly fails to mention that prices depend on two things: the cost of production (including labor) and the profit margin.  He argues that wages should be kept below inflation targets, yet makes no argument for keeping the lid on the other component of consumer prices: profits, which are dramatically increasing.

What is the "profit increase" (wage increases minus living costs) of labor (excluding senior executives) over the last few years, compared to the profit and margin increases of companies?

With corporate profits up worldwide, not only in Australia, companies have been paying off debt or making investments out of their profits, apart from debt-financed takeovers.  Meanwhile indebtness of household has dramatically increased (from about 70% of household disposable income in 1996, through 100% in 2001, about 160% in 2006, and still going up with no sign of a recovery (source: RBA via The Economist 2007-05-10).

Despite the inequitable distribution between labor and management of increases in profits over recent years, Kelly is fear-mongering:

Consider now that Kevin Rudd, with the economy stretched to the limit and inflation on the march, intends to legislate sweeping changes to the industrial system that will alter the balance in favour of employees and trade unions

Let’s see: a couple of days ago, the Commonwealth Bank announced a 17% increase on profits, earlier in the year, Woolworths announced a 28% increase on profits (including a significant increase in margins).

Can Kelly argue that the balance of power in negotiations for wages and conditions has not shifted radically away from workers in the last few years with the rise of AWAs?  (See the 2007-08-02 post "AWAs only help professionals, not the majority".)

Hmmm.  I never saw Kelly ask "What has the Howard/Costello team done to control rising corporate profit-margins as a means to controlling prices."

Funny about that.

Australia's household indebtedness 1996-2006 rises dramatically


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