It's been accepted for a long time that as economies mature, you hit lower growth. The explanation even for this phenomenon is that as economies mature, the scope for growth diminishes. It makes sense mathematically that a jump from 1 to 2 is 100% but 2 to 3 is 50% and 3 to 4 is 33.3% and 4 to 5 is 20%. If you expand this out to the entire economy and include everybody within it, then GDP growth is naturally diminishing in returns. Conversely if you start with little, there is greater scope for growth so we find the later starting developing economies grow at higher rates.
That being said, the first world has been a good 30years where growth has been low single digits and the funding for this growth has been done through credit. We know this because countless data shows wages growth has been relatively stagnant in the same time span. As economies grow to the vanguard of development, they become increasingly like zero-sum games. If there was away of pocketing the growth, you win - and so we've seen in the stagnant wages growth, 30years of the wealthier 1% pocketing the growth.
Not surprisingly we find flagging aggregate demand, which then creates deflation. This is the very thing the governments of the first world are trying to avoid. At this point in history, we have governments that meet at things like APEC and G20, and they try to spur more growth around the globe without necessarily understanding what that would mean. And to date corporate Australia has called for an increase in productivity - which involves things like abolishing overtime penalty rates and so on.
So here's the thing. Productivity gains are strictly to do with supply-side. I'm no economics expert but I can tell you there's nothing in productivity gains that would be applicable to the grand problem of aggregate demand. In the near-zero-sum game of postindustrial economics, the 1% have played hard to win as much of the growth for themselves without actually growing the economic pie at all. It never seems to occur to them the fact that they've cut so much from people's wages has led to the sagging aggregate demand.
Over the thirty-odd years commerce and the corporate lobby has beaten out labour interests 40-0. The rise of inequality is no accident - it is directly attributable to the trickle-down economics that have cut taxes for the wealthy and apportioned more and more of the cost of government on to the poor. In fact corporations are arguably winning so much they're beating up on governments - but that is another topic. The main point here is that the corporate lobby has already won a lot without giving up much. But in so doing, it has forced out the power of the consumer it so need to sustain itself.
One of the strange outcomes of Abenomics in Japan is that a conservative Prime Minister is running around telling the major corporations to raise wages. This is because the reductio ad absurdum of seeking maximum profits by cutting back on labour costs has gotten to the point where the working poor cannot afford to be the consumers the businesses demand. For the economy to grow again, it needs to "relate"; and to "reflate", the consumer has spend a lot more to power growth. In other words, Abe's government has admitted that chasing productivity is a fool's errand when you're trying to shore up aggregate demand. You have to shore up the spending power of the consumer in a sustained manner.
So here's the thing back in Australia... under this Coalition Government we've heard noises and seen signs that they wanted to raise the GST as well as give states to rights to chart their own income taxes. They've cut back on the welfare spending because that is what all conservative governments do, while tried to figure out a way to cut penalty and overtime awards. None of these things are actually putting confidence in the consumer. None of these things are adding to the spending power of the average Joe; it's not going to help with aggregate demand. Thus it follows that for all the talk about the Coalition being good economic managers, they're really not addressing the real problem of our economy to get it growing again.
Vote Compass
The election is near and so it was time to go and do the Vote Compass test. As little indicators go, it's a nice little toy for those who want to put a grid to one's own political inclinations and where they might stand. As usual, I landed a bit left of even the Greens, and halfway progressive between the Greens and the ALP, which is much more left and much more progressive than where the Coalition are pitching their policies. Not surprisingly they thought I should vote Greens but of course I'm wary of the ideological bent of the Greens when it comes to their policies outside of the environment. I'm also not happy about the way things played out with the Rudd Government ETS discussions and the Greens' role in that debacle which in effect brought about the terrible sequence of events whereby we now have Direct (in)Action as our carbon emission abatement policy.
The disturbing part of the vote compass survey is that it puts me so far to the left as it does when in fact I don't feel that far to the left. I maybe witnessing the great shift to the right by all parties which has left me stranded to the left of all conversation being had by the political parties in Australia. I'm not terribly radical, I don't even go protesting or marching anymore. I just write this blog here and point at how stupid the major parties are but you couldn't put me so far to the left beyond the Greens. Frankly I'm a little mortified. Where have all the hardcore left people all gone? Those irritating leftwing ideologues back on campus in the 80s? Where the hell are they now?
Probably paying off a mortgage some place.
Maybe we're all kidding ourselves in thinking that we have divergent views. Maybe the tragedy of our contemporary political state is that the views are so convergent there isn't any scope to be different or radical or interesting. Maybe the Coalition and the ALP and The Greens are a lot closer in their positioning than we normally think all of them bunched around the same old tired bad ideas that leads to this sad stagnation. The illusion is that voting one way or the other is going to make a big difference. I'm beginning to think that might be one of the big lies in our society.
For the record, Antony Green's election calculator says there needs to be a uniform swing of 4.0% to oust the Coalition. I don't know what the historic precedent for that would be for a first term government. But then, this has been a pretty awful government most of its three year term.
Hope springs eternal.
The Budget Comes Home To Roost
This really was a sucky budget so you wonder how the government is hoping to win an election.
First off, whatever consumer sentiment boost that was handed out by the RBA's interest rate cut during the day was blown out of the water by the budget.
ANZ Banking head of Australian economics Felicity Emmett said the budget appeared to have neutralised any sentiment lift from the interest rate cut.
"While the RBA's cut to the official cash rate last week is likely to have been well received, any positive impact looks to have been somewhat offset by consumers' reaction to the commonwealth budget," she said.
"According to the polls, the reaction has been largely one of moderate 'disapproval'."
A Fairfax/Ipsos post-budget poll showed that 46 per cent of households disapproved of the budget while only 39 per cent approved. Although not loathed like former treasurer Joe Hockey's ill-fated first budget in 2014, the coalition's latest effort did little to buoy spirits at a difficult time for the Australian economy.
"While this is a better reaction than the one to the 2014 budget, the lack of traction from [this] budget would be disappointing given the government is now in election mode," Ms Emmett said.
"With the coalition and Labor running head-to-head in the polls, the government has its work cut out for it to win over the electorate by the 2 July election."
Way to go ScoMo!
If that's not bad enough this government's finding all kinds of problems putting its budget across as good. Take this Q&A thing that happened:
"I've got a disability and a low education, that means I've spent my whole life working for minimum wage. You're gonna lift the tax-free threshold for rich people," he said, addressing federal minister O'Dwyer.
"If you lift my tax-free threshold, that changes my life," he went on. "That means that I get to say to my little girls, 'Daddy's not broke this weekend. We can go to the pictures'. Rich people don't even notice their tax-free threshold lift. Why don't I get it? Why do they get it?"
After a sympathetic hearing from Goldie, the question came to O'Dwyer, whose answer eventually wound its way through to missing the point of the inquiry almost entirely - with Mr Storrar's eyes all but popping out of his head at the minister's assurance that when it came to budgetary tax measures: "It's all about balance."
On the contrary, minister.
"To rich people it is a Coke and a milkshake or whatever," Mr Storrar said of tax breaks for higher income earners.
"To me it changes my children's life … People who make $80,000 a year … well, they don't even notice it, love. We notice that sort of stuff."
And it was pretty much all downhill from there.
O'Dwyer helpfully launched into a cheerful monologue about pies - growing the pie, rather than carving it up as the Greens were inclined to do - but the look on Mr Storrar's face suggested the only thing he could smell was waffle. But the minister soldiered on with her pastry metaphors. It was a bit like watching Mary Poppins trill "Supercalifragilisticexpialidocious" - the thing you say when you have nothing to say; then before you knew it, she'd taken wayward flight to offer a description of her plans as Small Business Minister.
These people damn themselves. One can easily imagine the ire of Malcolm Turnbull as he watched one of his ministers pretty much immolate his cause. Of course, then there was the $6000 toaster write off that Kelly O'Dwyer mentioned. It's a corker! When the SMH is making fun of you at the top of their website you know you've laid a giant turd in public.
UPDATE:
Oh, And Look, More On ZIRP
The race to Zero Interest Rates They Say.
UPDATE:
Oh, And Look, More On ZIRP
The race to Zero Interest Rates They Say.
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