Labour abandons monetary policy bipartisanship

Tracy Watkins reports:

Labour leader Phil Goff is calling an end to the 20-year consensus on monetary policy.

Mr Goff is expected to use a hard-hitting speech to Federated Farmers in Wellington today to declare that the Reserve Bank’s policy targets – which influence interest rates and the dollar – are no longer working.

Labour came under pressure while in office to change monetary policy and signalled a rethink toward the end of its term but did not indicate what might replace the current regime. Mr Goff is not expected to spell out the alternatives in his speech today but will call for more work on the options.

This looks rather desperate.

First of all, it is of course correct that monetary policy is not perfect.

But I am reminded of the words of Winston Churchill about democracy – how it was the worst form of Government – apart from all the others that have been tried.

While there are some enhancements that can be made (and Dr Bollard has been doing some work on these), you can’t really make significant changes without allowing inflation to get out of control – and that just lowers the country’s standard of living – everyone gets poorer.

So to some degree Goff is just posturing to, unless he starts specifying what changes he would make. But declaring monetary policy is no longer working is silly, because of course it is. You can’t blame the high NZ dollar on monetary policy considering we have the official cash rate at a very low 2.5%.