Sunday, October 14, 2012

Economic threads & the need for a new view

Tonight's brief post draws together a few recent economic threads. After having just watched Looper, I'm not sure  that I'm up to any more! It was far more violent than I expected, but it was Bruce Wills after all, and I'm still not convinced by the end.

To my mind, there are two distinct features of the end of the current mining boom that are different from previous booms. One is a softer landing because this boom did not ignite economic activity and speculation elsewhere in quite the same way as in the past. The second is the continuing strength of the Australian dollar linked to its new reserve currency status.

Normally, the first would be counted as a plus because there are fewer resulting excesses and imbalances. Other parts of the economy have more scope to expand to pick up the slack. However, the strength of the dollar impedes that process.

Over the last few weeks there has been a steady stream of reports dealing with what we might call the hollowing of the Australian economy. These are long term trends, including the progressive loss of service sector jobs that, in total, dwarf the loss of manufacturing jobs. The jobs that are going are especially mid ranking jobs in pay terms, solidly respectable middle class positions, although higher flying sectors such as finance have also been affected. One would expect the second, but the first is an issue.

I have been writing about some of these trends for a long time. The thing I don't know and that is currently exercising my mind is just what it all means. It would be easy to be negative, to conclude that Australia will go the way of Tasmania or New England. In the case of New England, the much vaunted benefits of economic restructuring may have occurred, but they didn't occur in New England. There there was largely just pain and economic decline.

A rather long time ago now I argued that Australia could not assume that economic reform would, of itself, benefit Australia. There was a real risk that the country would become an increasingly peripheral branch office player. The country has done rather better than I forecast at the time. but the trends that I forecast have occurred.

The world is different now. I am wondering what those differences mean to my own arguments. My feeling is that I need to reshape my position, that it's time for a fresh look.

Later this year, the Government will release its white paper on Australia in the Asian century. That will provide an opportunity for a more detailed review of the issues that I am talking about. 


Follow up posts relevant to this topic:


Evan said...

I read an interesting book a while ago called The Winner Take All Economy (or something similar).

It was about celebrity markets mostly (where value isn't tied to much that is concrete). These markets tend to be dominated by a few big names (1-2 dozen) and then there is a huge gap to the next tier down. The writer pointed out that more and more markets are becoming like this.

The hollowing out of the middle is not new. It is pretty clear that this trend is well established and the result of the insecurity ('flexibility') of the labour market and other 'reforms'.

Unfortunately the neo-liberal ideology rules uncontested in Canberra so far as I can tell. Not selling farm land so we are in control of life's essentials is regarded as 'just so unfashionable/out of touch etc' rather than a prudent way of controlling what is of interest to us.

Steve Keen is trying to re-do money in economic theory - see it as something generated by the system rather than something that the system uses. You might find this interesting - though I think it is a bit tangential to your main interests.

We also need ways of thinking on the basis of 'the economy is a wholly owned subsidiary of the ecology' I think.

I look forward to hearing your reflections on the new view(s) you come to.

Jim Belshaw said...

I am probably not going to satisfy you, I fear, Evan. Too much the conventional economist!