Seems like that is all that is in the news. Today, for example, Federal Treasurer Wayne Swan is using the Howard Inflation to attempt to reduce tax cuts. This follows his declaration of war on inflation. There is a lot of finger pointing going on, and Wayne Swan's answer is to return to the "dinosaur" Keynesian macroeconomic policy that everybody in the world realized was crap about 30 years ago. But, if Swan is accurate in identifying the underlying cause of the inflation, then the solution is simple--free trade!
He is implicitly describing inflation as being of the demand-push flavour (this is a bit dated, but the first paragraph sums it up on the demand-push issue). While I am not a fan of Keynes, that seems to be the framework Swan wants to use, so let's take a look. Demand-push simply means that aggregate demand is growing faster than aggregate supply. People want more stuff, markets aren't able to produce that stuff as quickly as people want to buy it, which causes them to compete the prices up. Why this is happening doesn't really matter. Swan, like any Labour politician, will blame things like lack of training and infrastructure and things of the like. But the standard Keynesian is to assume that aggregate supply takes quite a while change. Which certainly makes sense in the case of one-economy world.
But we don't live in a one-economy world. We live in Australia, replete with tariffs and import quotas and trade barriers galore. Get rid of those, and I promise you that aggregate supply will have no problem keeping up with aggregate demand.
He is implicitly describing inflation as being of the demand-push flavour (this is a bit dated, but the first paragraph sums it up on the demand-push issue). While I am not a fan of Keynes, that seems to be the framework Swan wants to use, so let's take a look. Demand-push simply means that aggregate demand is growing faster than aggregate supply. People want more stuff, markets aren't able to produce that stuff as quickly as people want to buy it, which causes them to compete the prices up. Why this is happening doesn't really matter. Swan, like any Labour politician, will blame things like lack of training and infrastructure and things of the like. But the standard Keynesian is to assume that aggregate supply takes quite a while change. Which certainly makes sense in the case of one-economy world.
But we don't live in a one-economy world. We live in Australia, replete with tariffs and import quotas and trade barriers galore. Get rid of those, and I promise you that aggregate supply will have no problem keeping up with aggregate demand.
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