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The Forum > Article Comments > We need tighter fiscal, monetary policies > Comments

We need tighter fiscal, monetary policies : Comments

By Henry Thornton, published 5/10/2010

Time's a wasting, and we actually need tighter monetary and fiscal policies now.

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@Ozandy, “it is better to let the market set the price…”.

I disagree. Let me tell you about my brother-in-law that managed one of the very first video outlets in Sydney. At that time, a new release video would cost around the $45-$50 mark. He was at the warehouse and bought a shitload for around $5 and thought that he would move them quickly, and so put them in a stand at the front of the store and advertised them for $20. None sold for 2 weeks. So he put them up to $35 and displayed a sign stating “Slashed from $50”, and they sold in a few days.

The point being, is that the marketplace is conditioned into believing what the “value” of a product is. A new Holden is NOT worth $38,000 but the marketplace is conditioned into believing that it is. It’s the same for everything.

The concept of competition within business, doesn’t work in the simplistic form that we are lead to, or choose, to believe. Fuel is the classic example, where there are a myriad of oil companies providing fuel, but their prices go up and down together on the same days of the week. They do not compete with each other to see how cheaply they can sell it, but they compete with each other to see how much they can sell it for. This is the competition within big business.

TBC...
Posted by MindlessCruelty, Wednesday, 6 October 2010 9:32:45 AM
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Products are priced upon “what the market will bear”….this means optimizing prices, not competing for “cheaper prices”. In big business, the exceptions to this rule is when a new and usually foreign business wants to gain market share in a new marketplace to them, but an established one for its competitors…such as when Nashua came into Australia and were much cheaper than IBM for the next 5 years to gain market share, and then when established, its prices went a little higher than IBM or around the same mark. Woolworths puts small green-grocers out of business everywhere it opens a new store, by under-cutting the local market with much cheaper prices, and when the small competitors are out of business, they then bring their prices back up to above what the local small business was charging. They maximise profits… they don’t compete to be cheap, but compete to be expensive. And they do it unfairly.

Canada resolved this problem with Woolworths by making a law that if they (a national or multi-national company) reduced prices for an item or items in one store, then they had to do it across the nation as well, and that stopped them from putting small businesses out of business unfairly. But of course, that’s too much to ask of the Australian government.
Posted by MindlessCruelty, Wednesday, 6 October 2010 9:32:52 AM
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Arjay,

You can be forgiven for forgetting the GFC, as here in Australia we hardly felt a ripple from it.

Your arguments are laughable when you compare our position with the rest of the world.

Our government debt is negligble compared to the rest of the OECD (as %GDP), and lower than Howard took us to when we did the same to avoid the Asian Economic Crisis in the mid 90s.

We are hardly "drowing in foreign debt" @ 92%. Most OECD nations are well over 100%. (e.g. UK >400%, Netherlands >400%)

Of course, we also survived the GFC thanks to our strong, independent banks.
Posted by TrashcanMan, Wednesday, 6 October 2010 10:53:09 AM
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Arjay Govt run banks isn't that socialism.
Make up your mind which system you favor.
Posted by 579, Wednesday, 6 October 2010 11:56:08 AM
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the mining boom and hot money flowing out of $USD is driving our dollar, and reducing demand for all export industries. This is doing the RBA's job for them.

Unfortunately, like monetary policy the " automatic stabilizer" effects of a floating exchange rate are brutal on some industries.

Higher RBA rates will of course lead to an even higher exchange rate. The flow of hot money betting on our currency is so large, that even if govt wanted to intervene it could not.

we do not have any fiscal policy problems at all, an some sectors of the economy are doing very tough indeed.

regional and sectoral specific expansionary fiscal policy may yet be needed
Posted by Grant Musgrove, Monday, 11 October 2010 8:17:43 AM
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