“Social cohesion” has been a popular concept for many months now, and not just from the government. The mainstream media united to denounce a fictional threat of Muslim sectarianism in the wake of Senator Fatima Payman’s move from Labor to the crossbench. Business leaders have fretted that fraying social cohesion is bad for business. The problem is pro-Palestine Australians, at least according to government sources who denounced Payman and accused pro-Palestine protesters of violence and antisemitism, and their media mouthpieces.
All along, a far bigger threat to social cohesion was right in front of us. Social cohesion is first and foremost an economic issue. Economic insecurity, both general and at the micro-level, is directly linked to xenophobia, hostility to immigration and right-wing populism. Growing economic insecurity, particularly since the financial crisis of 2007-8 and its enduring aftermath in countries such as the United States and the United Kingdom, has had lasting political impacts. The most recent, now vanishing, burst of inflation has coincided in Australia with a high level of interest from policymakers in curbing immigration.
As much as inflation itself, the Reserve Bank’s belated, then very aggressive, tightening of monetary policy — including a rate rise towards the end of 2023 despite evidence that 4%-worth of rate rises had already pummelled the economy — has done much to worsen economic insecurity. Indeed, the RBA’s repeated monetary policy tightening has arguably caused most of the increase in economic insecurity among Australians in the past two years, as mortgage-holding households faced significant rises in repayments and consumers curtailed spending, harming small businesses across the country.
The one positive has been a strong labour market, which has ensured that the unemployment surge seen in previous significant rate tightenings hasn’t yet transpired, even though unemployment has risen above 4%.
But with hundreds of thousands of households in a state of economic insecurity, the RBA meets again today with some commentators still demanding yet more interest rate rises — despite continuing evidence both of economic weakness and falling inflation. The fact that our remaining sources of inflation are either far outside the capacity of consumers to affect through lower demand, or in the hands of governments, makes the case for any further rate rises purely ideological rather than evidence-based — but that rarely stops inflation hawks.
What the RBA risks with a rate rise is a significant worsening of economic insecurity. While the concept of “mortgage stress” is an arbitrary (and overhyped) one, the fact that nearly a third of mortgage holders in June had fallen into that category suggests tens of thousands of households are at or near the brink of failing to make repayments.
Australians unable to afford to enter the housing market will be further isolated from that goal by another rate hike. The steadily softening labour market means fewer options for Australians who lose their jobs. The last year has seen a 20% rise in bankruptcies. Another rate rise threatens a disproportionate impact in terms of the number of Australians unable to make repayments, go bankrupt, struggle to find work or give up on being able to buy their own home.
Each rate rise also pushes insecurity higher up the income scale, as middle-class households face a growing struggle to make ends meet amid higher mortgage repayments, especially in NSW where, fuelled by the Sydney property market, the average mortgage is $770,000.
There’s a plausible scenario in which another rate rise triggers serious economic dislocation among not just low-income households but middle-income earners as well. And with that greater economic insecurity will come the xenophobia, populism and tribalism that history tells us travels in its wake: hostility to immigration, greater resentment expressed towards other groups, willingness to support marginal politicians who offer glib solutions and demonise out-groups — and media hucksters like Rupert Murdoch who know anger, grievance and resentment are good for business.
Blaming Muslims for undermining social cohesion is the very embodiment of the social division we all claim to be wary of. There’ll be a lot more of it if the inflation hawks have their way.
