This post began Tuesday. I ended up holding it back because so much was happening. Since this post is in part a way of ordering my own thoughts and covers many topics, I am using headings.
Mental Health Numbers Overstated
Psychiatry professor Jon Jureidini argues that popular mental health campaigns are misleading the public into thinking that serious mental illness is more widespread than it actually is. I am sure that he is right and it’s not the only case. It all leads to some very distorted policy making, as well as making people obsessive and unhappy. Current economic reporting in this country is a case in point.
Global Economy
Oil, oil, oil! The collapse in global oil prices is having all sorts of ripple effects. Saudi Arabia and OPEC seem to be doing what the iron ore majors have been trying, expanding production to drive out high cost producers. Countries such as Russia and Venezuela who have been using oil to fund social or military adventures are in a degree of strife.
Commentators are focusing on the positives in the oil price move. Lower oil prices mean more disposable income for consumers, lower transport costs. I think that’s right, although lower oil prices also add to deflationary pressures in some countries.
The thing to remember with oil, LNG, iron ore and coal is that they are all commodities and behave that way. High prices draw new supply that progressively comes on stream as demand begins to fall, compounding subsequent price falls. We have seen it before. No doubt we will see it again.
There is something almost breathless in the reporting of international economic activity at present. Commentators have barely got one sentence out before events over-run them.
Australian Economy
If the commentary and reporting on the international economy is almost breathless, that on domestic economy and politics is more so.
Reserve Bank Governor Glen Steven’s statement on the reasons why the Bank had yet again kept official interest rates on hold had a more negative if still balanced tone. It’s not surprising.
The global economic scene has become more clouded, while the latest national accounts figures show that real Australian incomes are falling. Lower commodity prices are hitting government revenues, while many Australians are beginning to suffer lower real incomes. You can see this from the latest national accounts figures. The economy is still growing if at a low rate, but real incomes are falling.
Over the last two weeks, domestic reporting has become increasingly frenetic. As happened with Senator Ricky Muir’s attempt to open a motor show on the lawns of Parliament House, the press flock swarms, swoops and wheels around every new development. 
I find it all quite distracting. It makes it hard to think straight. Get over it, guys. There are significant issues, but we are also dealing with a natural end boom process that Australia has seen before. Each boom is different, but the pattern does repeat.
To my mind, the distinctive feature of this end boom is the absence of major crash. I don’t expect one, just a slow and sometimes painful adjustment.
Strange disconnects in Australian politics
All this means that there are some strange disconnects in Australian politics at the present time.
Down in Canberra, Public Service Minister Eric Abetz is engaged in a bitter dispute over public service pay. The Minister points out that public service pay increases have out stripped the rate of inflation by 14% over the last ten years. He clearly regards that as excessive. I'm not sure that people would agree: If you think about it, that's an annual increase in real wages of a bit over one per cent per annum during a long boom period. That's not a lot and is well below the overall rate of real economic growth during the period.
I think that the comment says more about Minister Abetz than anything else.
Meantime, the Australian Financial Review fulminates about the Australian Government's inability to bring about real reform, largely blaming the cross-benchers in the Senate. The paper is seriously disappointed. It's not just the failure to bring about change, it's a failure to bring about the changes that the paper has been advocating!
Disconnect comes in because the Australian population does not accept the argument as framed. Disconnect comes in because, as in the mental health case, the swirling arguments bring about their own behavioural responses. The paper seems to put its arguments, as does the Government and much of the media, in the context of the need to respond to the now when we are actually dealing with longer term processes and issues.
7 comments:
And not just time frames. But tunnel vision.
Smaller and interconnected systems can be more resilient. While large and integrated systems can be quite vulnerable.
1040I think the AFR has probably understated the problem. I was hoping that you might take the view that as you and many others had predicted, it was obivious that the mining boom would not last forever. Successive governements have relied far too heavily on a transitory revenue to fund a long term expansion in government spending.
Hi Evan and Winton.
Evan, I agree with your systemic point.
Winton, I would agree that successive governments have relied far too much on transitory revenue and have spent too much money on consumption and middle class welfare. However, what do you mean by an expansion in government spending? In absolute terms or as a proportion of GDP?
Standard of livings have fallen and will fall further as the dollar goes down in value. I would have thought that was a natural result of this part of the cycle. I see little connection between this budget and the maintenance of standards of living despite Mr Hockey's suggestion to the contrary in this morning papers.
Assume that the Government had passed the budget in toto in May. Just how would that have contributed to higher standards of living and in what time frame?
Jim
According to Table 1, Statement 10 of Budget Paper 1, payments by the Federal Government rose from an average of 23.5% in the three years ended 2007-08 to an estimate of 25.3% for the three years ended 2015-16. I have chosen those years to focus on the longer term trend and avoid the increased spending associated with the stimulus package following the GFC.
The data suggests that there has been a substantial increase in government spending relative to GDP, even given implementation of the spending cuts proposed in the last budget. It seems likely that the GDP forecasts for the next year or so will turn out to have
been too optimistic. That suggests the budget estimates would have been too optimistic even in the absence of Senate obstruction.
I guess that if we continue to run deficits of around 2 or 3 percent of GDP that could actually prop up living standards for a about another decade, provided there is no major collapse in our terms of trade in the meantime. But the longer the adjustment is delayed, the more painful it will be.
It is better to cut spending now in order to avoid going further into debt, than to be forced to cut spending later in order to pay interest on debt.
Hi Winton. One thing that I need to do, I have decided, is to properly record some of the recent historical stats as I see them and especially those lovely graphs people prepare from time to time! Makes discussion easier.
If you look at current discussion, a number of different issues are mixed togther.
The first issue is the size of the Government sector as a proportion of GDP.This should include the states as well as the Commonwealth. One school argues that this proportion must be reduced, a second denies this.
The second issue is the trend. This can be seen in historical terms over varying periods and in prospective terms. One school argues that the past increase and prospective increases is unsustainable, the second challenges this.
The third issue is the budget deficit. Here there is a measure of agreement that the budget should be in surplus over the cycle. However, the weighting attached varies greatly.
Then we come to the composition of spend. Here the Government is in a degree of trouble because some challenge both the assumptions on which the budget is based (issues one through three) and then, given the Government's starting premises,the spend/revenue solutions chosen.
Over and beyond all this, there are those who argue that the obsessive budget focus with it varying overlays is distracting from the real questions that need to be addressed such as productivity improvement.
The Government has been arguing that its starting assertions are correct and that the package it is trying to put forward with all its myriad detail is correct and must be accepted as a whole.
It's a hard ask, one that is made more complicated by the new stream of initiatives or prospective changes including Murray this weekend, the Federation White Paper and the tax discussion.
Out of time now, and I have only dealt tangentially with your points.
Jim
I look forward to your assessment of the data. I had thought of doing something similarly ambitious, but the work is arduous and the rewards aret nebulous.
Too true, Winton, but I will see what I can do. Jim
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