A NYT editorial has slammed Goldman Sachs for its role in the financial crisis, Ten must work out what to do with Australian Idol in 2010, how the media downturn will affect higher education, newsreaders get emo, and more.
Real economy part 1: The big picture
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George Soros argues that “reflexivity” is to blame for the financial crisis — the tendency for imperfect, distorted perceptions of the market to affect market fundamentals, generating self-perpetuating bubbles, or even long-term super-bubbles that contradict traditional assumptions of market equilibrium. However right or wrong Soros’s pet theory is, it’s a more than adequate description of the danger the whole Australian economy currently teeters on the brink of. Ken Henry last week referred to the possibility of our talking ourselves into negative growth and you wonder how easy it will be to avoid that fate. Bad economic news gets front page treatment every other day, while good news — whether Treasury forecasts or ABS job figures — is publicly disputed. You may or may not believe this has anything to do with a media desperate to sell news, and a bi-polar political process that encourages confrontation and dispute. There are other, complicating factors. It’s an intangible thing, the real economy, because it’s a composite of millions of individual decisions a day. An accurate picture is pointillist, and even then misleads because of the enormous variations across the Australian economy. Not merely by states and regions but by industry, by trade orientation, by market. Understanding what’s happening in the real economy is therefore immensely difficult at the best of times, but even harder during a slowdown. What was a two-speed economy during the minerals boom is in the process of becoming a multi-speed economy. Different sectors will, necessarily, decelerate at different rates. Some will merely grow less quickly, although if you believe most China commentators, that’s apparently as big a disaster as actually shrinking. Some will barely be affected. Expenditure on essentials such as health, fuel and basic groceries won’t slow significantly. Others, sectors that depend heavily on discretionary income — like restaurants — collapse rapidly. There’s also the complicating factor of the impact of an extended boom. Demand for skilled labour has vastly exceeded supply for several years. Employers have dealt with it by importing workers, paying more, and wringing their hands. In some sectors there remains considerable pent-up demand for labor. Unemployment among males in Western Australia in October was 1.7%, which is about as close to full employment as we’ll see in our lifetimes. Any pent-up demand will ebb as revenue falls and more lay-offs occur, but commentators are also talking about employers being loathe to let valued employees go, having worked hard to get them in the first place. The first shift in employment will therefore likely be greater casualisation and more part-time work, rather than a sudden surge in joblessness. The car industry’s preferred method of handling falls in demand — simply shutting the factory down for a while — may become more widespread. Employment data from the ABS for the last three months shows male full-time employment holding up but female full-time employment declining in favour of growth in part-time work. We’re also still notionally stuck with an inflation hangover from the boom, although the gutting of demand might put paid to that quicker than the Reserve Bank, even on its revised forecasts, expects. And then there are trade-exposed industries that will benefit from the fall in the Australian dollar. This is the upside of the slowing of the commodities boom — a return to a more export-friendly dollar. Exporters will also find they don’t have to fight tooth and nail for employees if they want to expand. This should also, by the way, put paid to simplistic concepts of “carbon leakage” under an ETS that is established before our major trading partners. The movement of the Australian dollar in recent months would dwarf the impacts of a carbon price for trade-exposed industries. On the downside, there’s NSW. Australia’s least-competent government has presided over the double-whammy of having the second highest unemployment rate — 5.2% — and the second-lowest participation rate. Only South Australia has a marginally higher unemployment rate — NSW has a higher male unemployment rate — and only Tasmania has a lower participation rate. There’s plenty of substance to concerns that NSW could seriously impede attempts to avoid a slowdown. It’s had the brakes on for years already. In short, the “real economy” is an average of a group of increasingly disparate sectors and regions. The danger isn’t merely that, in Ken Henry’s words, we talk ourselves into a recession, but that we ignore the reality of a complex mixture of positive and negative factors affecting how many Australians have jobs and what sort of jobs they have. Tomorrow: A closer look at the labour market and retail sales. |
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8 Comments
Marilyn: I’ve just decided you are the worthy, but tiresome, winner of the Golden Gatling award. Just in case you don’t know what a Gatling is. It was a gun much loved of Mexican bandidos. The forerunner of today’s machine guns. You fed in a belt of cartridges-then I think you had to hand-crank them. As a result, the gun- sight was bad and tended to induce the marksman (?) to pull hard to the left. The results of this was a very widely spaced, and to be admitted, deadly weapon at close range. But of superficial value when it came to accuracy.
Here is a better reality. A bunch of rich guys rule the world and when they cough they send the world into a decline.
Spread the wealth (horrors for Sarah Palin) and stop the old rich guys getting it all then panicking.
The stock market is always written about as if it is a thing with a mind of it’s own but it is the nonsense of the stock holders dithering all over the place.
It is the debt load that is destroying the world’s economy, the greed of the few and the equal greed and stupidity of the “mortgage” holders who are so ignorant they have no idea they simply cannot afford it.
Any comments on the public sector Bernard?
Vol, if I said this once, I said a million times!…….. why don’t they ever listen?
Australians haven’t thought a lot about the direction of their economy or their part in it. Hence the legacy of Australian governments is a politically-geared economy - all things to all people and not much to everyone. Our diverse ‘market’ caters for part-time, casual, special needs, disabled and marginalised workers as it juggles trainees and semi-skilled permanents with professionals. If it sounds bizarre and unworkable its what’s called a dogs breakfast. How on earth this flimsy foundation known as our national workforce copes in a global economy is beyond curious. Australians are more flexible than expert. Had the nation set and followed the sheep, wheat, clothing, footwear, mining and light industry narrative we’d be riding high and not shot-gun. People and political agendas are becoming poles apart - for lack of expertise, energy and vision on both sides.
Another depressing factor being that ten of out best companies, together with a new mineral strike, could come out with wonderful results and the market would continue to drift lower. There is nothing that good news could do to turn this market around. The Oz share buyer has determined that we are in a depression and that is blo*dy that.
There are only two things which will alter the present scenario. A very nasty little world war OR financial institutions refusing to lend money on credit. Ha blo*dy ha! A week into the current, and savage realigning of the market, my bank offered me a large loan @ ’ favorable rates’. As it was a circular I imagine the same letter was received by many creditors. What a way to run an economy.
“Reflexivity?” In main street they call it “fear and greed.” It kind of cuts to the chase, and saves on ink and paper.
Contrary to economic dogma, our interest-bearing, debt-based economies are fundamentally unstable and prone to disequilibrium. Idealised models of economic equilibrium sound nice, and their portrayals of undistorted markets achieving optimal net benefit and harmony attract acceptance and acquiescence. But such models have more in common with the Dark Ages grip on European world-view held by Christian churches, than with an objective rendering of empirical data. Their absence of predictive capability, together with mainstream economic blindness to the long-visible warning signs of the current crisis, are ample demonstrations of this. The Dark Age churches peddled false salvation at the cost of subservience to church authority. The 20th and 21st century economic priesthood peddles false market equilibrium at the cost of subservience to exponential growth.
That 97% of the world’s money supply is generated as interest-bearing debt constitutes a classic positive feedback loop, fundamentally unstable (in the nature of positive feedback systems), and requiring exponential growth in both debt and credit (money) to meet compounding interest on money supply. While ever we rely for our money supply upon interest-bearing debt, we can resign ourselves to continuing boom/bust/bubble cycles.
That such a systemic, positive feedback system, with its inherent, fundamental disequilibrium, has been packaged and presented to collective humanity as a structural necessity, is a testament to the dogma and ideology of a powerful and often self interested finance sector.
Money is a human construct, designed by people, for the benefit of people, to enable the exchange of the goods and services within and between the most productive economies in world history. To address an insufficient supply of money, we need to apply some critical thought to the effectiveness and wisdom of our basic money supply mechanism. We are too easily persuaded that this is neither possible nor negotiable.