A tourism-based plan for controlling inflation

The Reserve Bank has released this graph showing who directed the change in consumer expenditures in Australia.

Travelers and students are very large moving pieces. This is a surprise. Normal boring inhabitants are more than students and travelers, but being more than a large number is different energetic piece.

There is a million places to go with it. I want to take this to a strange place: an idea for an inflation policy.

We are currently checking inflation by checking interest rates. Are prices rising too fast? Rates increase. Are prices rising very slowly? The rates are falling. A highly indirect approach with what they call “long and variable delays .. Why do we do this? Partly because we have always done this. Partly because of Milton Friedman, Inflation is always a monetary phenomenon.

They were worried about money supply. But now we understand that monetary policy is doing its real job Request for breaking in the economy (or increase the demand when inflation is too low). And interest rates are a highly divine way to control it.

So I have a different idea. You can control the inflation by fine adjusting the population (or partially control)-here with me.

1. If there are more people in Australia, more money is spent here and we increase the prices by increasing consumer demand. Increasing the population improves low inflation.
2. If there are fewer people in Australia, we spend less here and we reduce prices by reducing consumer demand. Reduction of population improves high inflation.

But this article Negative It’s about to turn into a nativist tyrite. No. We will control this with tourism flows, not migration. This is the joy of being a medium -sized, open and rich economy. We can put an important part of our population at any time. Just look at this graph.

More than 500 jet aircraft Come and go from Australia every dayIt carries about 60,000 people and 60,000 people. There are 1.8 million people per month (it may be more in the most intense months: 2.4 million in January this year).

We have options: aircraft can be filled with Australians, and you can get closer to spend a lot of money in other economies before returning. Or, when we put the local economy into fruit juice, aircraft can be filled with tourists coming and going home, so less Australian travels abroad and more local demand.

Does this look conceptually meaningless? As shown in the graph above, the numbers here are large. Australians have 10 million overseas trips per year, which is slightly more than one million a month.

So… How do we do this?

I recommend a tourism tax. $ 500 for the cost of passports without an Australian passports to Australia, and the planes that come here will be much less full with foreign travelers. Airlines will download empty seats and Aussies Prices are challenging, throwing Fiji or Thailand, etc.

This can be combined with an outgoing tourism subsidy if necessary: if you are a Aussie, $ 500 out of your flight. (Some fine policy design will be required, because we cannot get more than someone flying to Wellington for six weeks in Tuscany.

Is inflation too high? In the cherry flower season, we can insert the landlords with higher interest rates for two weeks or send them to Kyoto. Which one will be better?

Will the hotel industry be like this?

Mr. Hilton can stick it to his pipe and smoke.

The airline industry we have to worry about. If we have narrow edge gaps and tax in a way that means that the aircraft are empty, it will not continue to land here, so subsidies and taxes may need to go hand in hand.

In addition, at high inflation times, this policy can be perceived as a working paper for baby explosions, because they often have time and money to travel. However, at low inflation times, it can be seen as a tax in the same explosions. And in this case, instead of seeing a large number of foreign tourists on the street, it may not be popular with the landlords who want to reduce their interest rate.

The real benefit is to eliminate uncertainty. Instead of ratio changes, we use a more meaningless and less central arm for the welfare of people in some of the economy.

What about the dollar?

Now, we can reach this goal that I describe with exchange rate manipulation. A high dollar makes it expensive to visit Australia and make the rest of the world cheap. Exchange rate differences explain some of the movements in the first graph. In the second graph, when the pink line sank under the blue line, it was due to the strengthening of the Aussie dollar in the 1990s, from about 60 US cents to 90.

But we swam the dollar well and it may not be wise to go back to dealing with it.

It will be easier to implement and measure a direct policy. And frankly, first of all, such a tourism -oriented idea complement Instead of changing the interest rate policy.

However, the application is not really an important issue, because this idea is rather than being a prescriptive. This article aims to draw attention to three things:

1. The idea that we have reached the best institutional environments is extremely impossible.
2. Road addiction to inflation control: Although all monetary methods are ultimately focused on demand, we use RBA to control inflation.
3. The current policy settings come with a high uncertainty for a vital segment of the population (usually mortgage holders are families with children who need to prevent their expenditures if the rates rise). Looking for other In the economy, ways to control consumer demand may make sense.