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Economy Heading South. No One at the Helm.

The latest figures on the health of the Australian economy as shown in the June 2015 quarter National Accounts continues to paint a gloomy picture. Meanwhile, the spin that Treasurer Joe Hockey and Finance Minister Mathias Cormann offer, is priceless.

It seems the thrust of their argument is that it doesn’t matter how bad the figures are, they would be much worse under the previous government, so that means it’s all good and no one needs to worry. Surely if they were that confident in their policy direction, they would do better than that.

When Labor left office, unemployment was 5.8%. It is now 6.3%. Annual GDP growth was 2.5%, it is now 0.2%, the $A was .92c against the $US, it is now 70c. But what is more concerning is that real net national disposable income per head, fell 1.2 per cent, the biggest slide since the GFC. We are now 5% below the peak at the height of the mining boom in 2011.

So, if you feel you have less money to spend and that things are continuing to get worse, you are right and you are not alone. The only reason we showed any growth at all in the June quarter was due to a 41% increase in government defence spending. This is what it took to deliver a 0.2 growth result.

Overall government spending increased by 3.4% which also delivered growth of 0.2%. Business investment took another slide of -0.7% and has declined 6.8% over the past year. So what does this tell us about how the economy is being managed?

hocClearly, if government spending in the June quarter increased by 41% and this, on its own, delivered a growth factor of 0.2%, then it becomes obvious that when the private business sector is in decline, only government spending can fill the void.

Unfortunately, 0.2% is way too low to have any positive impact on employment. Getting people back to work requires more spending and much bolder vision than that. So, did we hear a plan along those lines from either Hockey or Cormann?

Hockey’s response to the numbers was, “The fact is that the economic growth we had in the last quarter was in line with expectations. Of course it bounces around from quarter to quarter but it was in line with our overarching expectation.” It’s not bouncing around, Joe. It’s bouncing down.

matCormann told Leigh Sales on 7.30 Wednesday night, Employment growth is quite strong, much stronger than when we came into government, more than four times as strong as when we came to government. And indeed, the unemployment rate is now expected to – well it’s now lower than what was anticipated in the past on the back of better labour market conditions. So, our economic plan is working.”

Forgive me for asking, but how does one claim a win on employment growth when the unemployment level has risen by 0.5%? How does one preach austerity when current government spending is the only thing that is keeping the economy growing? How can one claim their economic plan is working when the current growth rate cannot reduce unemployment?

What the June quarter figures tell us is that if we are to avoid a recession, government spending needs to increase significantly on projects that create employment. We need to employ 800,000 people. Only by employing people can we increase demand, kick-start an increase in production, increase tax revenue and motivate business to invest.

None of this increase in spending has to mean an increase in debt. None of it. As a currency issuing government we are not spending constrained. Additional spending targeted to wealth creation is not inflationary. Two of our major competitors, Canada and Brazil are now in recession because they have failed to adapt to a downturn in demand.

fast

We have a real opportunity, right now, to kick-start an ailing economy by undertaking “Overt Monetary Financing” by the Reserve Bank. We put that money into building roads, railways, public housing, investing in renewable energy technologies, all of which would bring down unemployment, reduce welfare dependency and improve living standards not to mention the general health of our citizens.

Overt Monetary Financing (OMF) amounts to permitting sufficient deficit spending aimed at increasing employment and production. Importantly, no public debt is issued, no taxes are raised, interest rates would not rise and a job guarantee could be introduced immediately.

For this to happen we need leaders with vision, we need leaders of the calibre of Robert Menzies, Gough Whitlam, Paul Keating. Right now we have a government so constrained in their thinking, so inept, so ideologically blinded, they cannot see the wood for the trees.

As Nero fiddled, Rome burned.

33 comments

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  1. Neil of Sydney

    Listen mate facts are irrelevant. Most people never change their vote.

    In 1993 when Keating was PM and was hoping to win govt, unemployment was at 11%. And Keating won the 1993 election when unemployment was at 11%.

  2. Lee

    ” Right now we have a government so constrained in their thinking, so inept, so ideologically blinded, they cannot see the wood for the trees.”

    Even more unbelievable, there are still plenty of voters who think they are doing a good job!

  3. Kaye Lee

    In August 2013 there were 11 647 000 people employed working 1,645.8 million aggregate monthly hours

    In July 2015 there were 11 779 500 people employed working 1,634.0 million aggregate monthly hours

    The estimated resident population (ERP) of Australia at 30 September 2013 was 23,235,800 people.

    On 3 September 2015 the resident population of Australia is projected to be 23,884,846

    That means 132,500 more people are employed but they are working significantly less hours. Meanwhile the population has increased by about 650,000.

    Joe is full of crap

  4. Mike Stasse

    Welcome to limits to growth. Doesn’t matter who is in charge, only one outcome is possible, and that’s the end of growth and capitalism.
    This is actually a good outcome because growth is killing the planet and will destroy civilization.
    It’s only a problem because we still have an idiot system that relies on growth. We need a reboot.

  5. Michael Taylor

    “Listen mate facts are irreverent”.

    Then he goes on to tell us the facts under Keating, which, by the way, he has told us 17,653 times before.

    Neil, we really don’t care. That was 22 years ago. We are sick of hearing about it.

    If you can’t contribute to a topic without spewing up the same old rubbish then I suggest you don’t bother commenting.

  6. Neil of Sydney

    The topic is facts. And facts are irrelevant. Most people never change their vote.

    Do you really think if unemployment was falling you people would vote for the Coalition?

  7. Kaye Lee

    “Most people never change their vote.”

    What a sad indictment that is on the sheeple who are “most people”. It means policies are unimportant, lies don’t matter, corruption can flourish, we can go to hell in a hand basket, and they would sit back and let it happen. It displays a distinct lack of responsibility and/or an inability to think.

  8. Kaye Lee

    How can I say who I would vote for if I don’t know their policies? Unemployment going down would be good but you could achieve that by shooting people. I certainly wouldn’t vote for the current government’s policies but if they have something new to offer I would listen. (Disclaimer,…not under Abbott. he truly HAS to go, and more of the same from Morrison would be no better))

  9. Jexpat

    This article would have been a lot more effective without the tacit MMT plug.

  10. Lee

    “What a sad indictment that is on the sheeple who are “most people”. It means policies are unimportant, corruption can flourish, we can go to hell in a hand basket, and they would sit back and let it happen. It displays a distinct lack of responsibility and/or an inability to think.”

    Unfortunately that is the case. Policies are not released until 48 hours before an election so no one has time to scrutinize them and call bullshit. Several people in my workplace had already voted for the Liberal party before then.

  11. diannaart

    I have changed my vote over the years and know many others (AIMN included) who have also changed voting habits, plus there are people who reassess their vote every election according to what they perceive is better.

    Right now I would vote for the lizard-people from Alpha Centauri if they offered humane workable policies with the best interests of a sustainable environment supporting a sustainable economy.

    The latest from Naomi Klein looks well worth a read: This Changes Everything: Capitalism vs The Climate (2014)

    http://www.theguardian.com/books/2014/sep/19/this-changes-everything-capitalism-vs-climate-naomi-klein-review

    We do need to look forward, we definitely need to change and both Labor and the LNP need to go.

  12. Möbius Ecko

    I’ve always voted for the best local candidate no matter what party, so ended up voting Liberal several times in the past as that local Lib was by far the best candidate. That candidate retired a while back, screwed by Abbott actually, and replacement Lib is an Abbott apparatchik down to repeating the slogans.

    If I tallied it up I’ve probably voted Liberal more than Labor, independents most, Greens and Democrats twice.

  13. totaram

    If no one ever changed their vote, we would get the same government every time and there would be no point voting at all. The facts don’t support the statement that no one changes their vote. But to NoS facts don’t matter. Simple.

  14. stephengb2014

    Jexpat said “This article would have been a lot more effective without the tacit MMT plug”.

    So what is wrong wth MMT – it offers more sense than anything else on offer. The economic rationalism approach is based on lies about government budgets being like housold budgets.

  15. mikestasse

    How can voters make sensible choices at the polling booth when they don’t even know or understand what is going on…….??

  16. Jexpat

    stephengb2014:

    The statement would have been more effective if it had used terms that most people understand and accept. As in: spending (or even borrowing) on investments that yield a positive rate of return and increase emplyment (easy to accomplish with low interest rates) is wise economic policy.

    A major problem in the Australian economy at present is the steep, downward trendline in private investment expenditures- and that decline has shown no signs of abating, despite Hockey tax and accounting trickery aimed at inducing small businesses to upgrade and expand capacity.

    Many of us knew that wasn’t going to have much effect- because businesses won’t expand or hire unless they see increases in demand or a broader customer base. Currently they don’t -so they won’t.

    That leaves government to fill in the gap- which it can do, wisely, through investments in assets that produce revenue or result in future savings and efficiencies.

  17. Kaye Lee

    Australia’s sovereign wealth manager, the Future Fund, returned 15.4 percent for the year to June 30

    The Future Fund’s investment portfolio generated a cumulative return of 52 per cent in less than three years since July 2012. We could borrow as much as we like and stick it in the Future Fund and make a profit. But that doesn’t do much to help anyone or improve anything other than numbers on balance sheets.

    They actually have over $117 billion in the Future Fund so anyone who doesn’t like us having a deficit, we could actually wipe it out easily but they won’t because we make more investing that money and staying in debt.

    “Returns from investments are likely to fall as central banks and governments ease back on economic stimulus measures, the head of Australia’s sovereign wealth fund says.”

  18. Graeme Henchel

    You think they know what they’re doing
    You think they understand
    Well I’ve come to the conclusion
    They really have no plan

    Sure they found a way to power
    Through lies and pure deceit
    but now they’re all but drowning
    In their neo-con conceit

    They had a list from the IPA
    Kiss the rich and punch the poor
    This manifest was not revealed
    in their glossy sales brochure.

    They’re no smarter than the rest of us
    But with unmitigated gall
    They’re only skill is telling lies
    In fact they know stuff all

    They don’t know how to govern
    They don’t know how to lead
    Their snouts are so far in the trough
    They’re stupefied with greed

    They take orders from those who pay
    To screw the common man
    They’ve no idea of what to do
    They really have no plan

    Problem is their backers
    Who pull upon the string
    Also have got no idea
    Of what their greed will bring

    We’re led by a kakistocracy
    Made of the worst of men
    In good time we’ll throw them out
    And start all over again.

  19. mars08

    I think you people are overlooking on very important point… haven’t you noticed that the motorways and emergency wards of western Sydney are no longer clogged with halal-muching, welfare-rorting brown-skinned refugees???? Surely that’s a win for everyone!!!

  20. Jexpat

    Kaye Lee:

    I’m referring to investments in infrastructure and productive capacity (i.e. R&D, human capital, etc.) in the traditonal Keynsian sense- as opposed to financial instruments, which, as you note: don’t do much to help anyone or improve anything.

    Indeed, as Keynes himself noted in his famous example from the General Theory:

    “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

    In other words- in addition to these effects, we also get a postive rate of return after interest (ar low rates) is taken into account.

    Anyone who’s ever had a mortgage and/or done capital improvement on property understands this- especially if they’ve gotten a healthy gain on sale.

  21. Kaye Lee

    Of course Jexpat. The argument about how we fund things isn’t that important – they are just numbers on paper. The argument about WHAT we fund is. And when the only growth industry is war then you have to say hang on….cost/benefit?

  22. Jexpat

    The NBN is a good example. I posted a quote the other day from an IT CEO stating how Turnbull had stuffed up the NBN, and as a consequence, Austrlia will not only reap opportunity costs (no tech company wants to deal with speeds that won’t even meet the American FCC’s current definition of broadband but also bleed talent overseas.

    investing in full fibre made sense- and would have generated returns. The present, already obsolete plans may actually amount to a detriment in the end.

    Not quite as bad as a new coalmine- but nothing to write home about, either.

  23. diannaart

    @mars08

    the motorways and emergency wards of western Sydney are no longer clogged with halal-muching, welfare-rorting brown-skinned refugees

    We’re not fully into election countdown – just wait, there’ll be leaners, leaning everywhere – sweeping plagues of ’em – only the Libs can save us.

    😛

  24. Möbius Ecko

    Never thought I would see this. The Australian says Hockey the worst Treasurer in 40 years.

  25. lawrencewinder

    How often have we seen the liarbrils leave the front bench just before a crisis and then relentlessly bitch and moan when Labor handle it (e.g. GFC) reasonably well. Now they have the chance to really prove what fine economic managers they are. Unfortunately the only policy they will have with which to implement is one to destroy the workforce and unions with the Trade Deal and our best arable land with Fracking and coal mines. “Eleventy” Hockey and “Horse-Shite” Corman are about to deliver Keating’s “Banana Republic.
    Poor Fellah, my country.

  26. stephentardrew

    Good read John.

  27. diannaart

    @ lawrencewinder

    Curious, that the striving self-made men (and a couple of women) of the Libs are not using their electoral opportunity to prove their economic and management skills – show the people they really are the better party to lead Australia.

    Continuing to blame others just doesn’t work for anyone.

  28. BJWard

    I’ve said it before – but I’m convinced that Cormann’s and Smokin’ Joe’s cigars have something in them besides tobacco?

  29. Pingback: Economy Heading South. No One at the Helm. – » The Australian Independent Media Network | olddogthoughts

  30. Pingback: Economy Heading South. No One at the Helm. | THE VIEW FROM MY GARDEN

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