Was that the sound of the economy hitting a brick wall?

Thu, 06 Apr 2017  |  

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/sound-economy-hitting-brick-wall-013818115.html 

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Was that the sound of the economy hitting a brick wall?

Thump!

Was that the sound of the economy hitting a brick wall?

It looks like economic conditions have deteriorated in the early months of 2017 which means the government’s efforts to ramp up its preparations for the budget on 9 May are being undermined. As Treasury works through the latest numbers on government revenue and spending, it is having to put in weak numbers into its forecasting spreadsheet that will constrain its efforts to get the budget back into surplus within the next few years.

The economic news is starting to be of such concern that perhaps the budget deficit is dropping down the order of policy concerns, particularly if, as seems likely, the looming housing slump acts as a trigger to undermine consumer spending and the economy more generally.

Of most concern has been the stalling in employment growth and rise in the unemployment rate to just below 6 per cent. Linked to that is the rise, to a record high, for the underemployment rate. Just under 2 million people are currently unemployed or underemployed which is not only a social problem, but a macroeconomic one. Not working at all or not enough hours means there is a significant part of the workforce being underutilized, not earning – and spending – their wage and in doing so, getting the perpetual motion of economic growth entrenched.

At the same time, growth in wages is at a record low which has feed into the slump in retail sales growth which in February which recorded one of its weakest months in almost 17 years. Business investment remains sluggish, despite reasonable levels of business confidence, and credit growth continues to weaken. The only bright area for the economy is the strong performance of export volumes.

And even on this score, there are some worries starting to build. The surge in commodity prices that was evident during 2016 is starting to go into reverse. The iron ore price is now 15 per cent down from its recent high while coal prices have dropped around 30 per cent in recent months, both of which will pare back the gains to national income from what was a promising commodity price pick up.

A strong Keynesian would argue that these are not the circumstances where spending cuts and tax increases – the main means to return to budget surplus – are appropriate. Indeed, the case could be made for constructive fiscal stimulus to ensure the growth momentum of the economy picks up and the negative news on jobs and inflation reverses.

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Why don’t governments deliver policies that are good for the electorate?

Mon, 21 Aug 2017

This article first appeared on The Adelaide Review site at this link: https://adelaidereview.com.au/opinion/politics/paying-fair-share/ 

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Paying Their Fair Share

It’s the age-old question: why don’t governments deliver policies that are good for the electorate? Well, the answers are numerous.

Politics and policymaking should be simple. After all, being in government and delivering what voters want — making them happy in other words — and increasing the chances of re-election seems to be the proverbial win-win scenario.

Which begs the question, why don’t political parties do it?

Why don’t they deliver policies that are good for the electorate and good for their re-election chances?

Let’s cut to what the voters, in general, want.

A policy framework where each person who wants a job gets a job is key. In addition, access to quality and affordable health care and education, from kindergarten to university to trades training is fundamental. There are other issues that are basic, simple and fair.

Voters want the government to provide aged-care services that treat the older members of society with dignity. We want decent infrastructure, especially pubic transport and roads. We want people who are doing it tough to be supported by a welfare safety net — a decent rate of pension, unemployment benefits and disability support.

So far, so good.

Australia has given up on solving unemployment

Sun, 20 Aug 2017

This article first appeared on The New Daily website at this link: https://thenewdaily.com.au/money/finance-news/2017/08/16/stephen-koukoulas-unemployment/ 

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Australia has given up on solving unemployment

 It is a sad state of affairs to realise that the current crop of Australian policy-makers have effectively given up on reducing unemployment.

Treasury reckons that the lowest the unemployment rate can go without there being a wages and inflation breakout is around 5.25 per cent.

The Reserve Bank of Australia notes something similar, forecasting that even when the economy is growing strongly at an above-trend pace, the unemployment rate will hover between 5 and 6 per cent.
The current unemployment rate is 5.6 per cent or some 728,100 people – enough to fill the Melbourne Cricket Ground about seven times.

Given the Treasury and RBA estimates, it looks like Australia will never see fewer than about 700,000 people unemployed – no matter what kind of improvement we see in the latest jobless figures on Thursday.
It seems to be a peculiarly Australian issue. In the US, the unemployment rate is 4.3 per cent, in the UK it is 4.5 per cent, in Japan it is 2.8 per cent while in Germany, the unemployment rate is 3.9 per cent. And none of these countries is experiencing a wage/inflation problem. Indeed, even with the very low unemployment rate in Japan, wages are actually falling.