You will cheer up and buy a property or you will be exterminated:
Reading Edward’s thought-provoking and deeply reassuring paper throws up the following reasons for optimism.
First, despite the crazy elections, the real US economy is picking itself up off the floor. After a long recession, spare capacity is being used up, leading the US Federal Reserve to take the first step towards normalising ultra low interest rates last week. The US is one step back from the precipice.
Second, while growth in the world’s second economic giant, China, has slowed, this is a needed, and desirable, step towards a more normal rate of growth. China has accumulated much debt, but it also has large foreign reserves and, unless the Chinese Communist Party is feeling particularly self-destructive, it will use them to stabilise any unwinding debt crisis.
Third, Australia’s economic growth cycle is the longest on record, but it’s not the best we’ve seen. Over the past 25 years, the economy has grown 123 per cent. Measured as GDP per capita, living standards have risen 61 per cent. But we’ve done better. In the 25 years following the end of World War II, the economy grew 230 per cent.
Fourth, we are not Americans. US citizens have seen no real increase in the median income for the past two decades. But in Australia, despite two decades of relentless economic restructuring, even the bottom fifth of households have seen a real increase of 60 per cent in their disposable income over the past. The rise in inequality in Australia has been more muted than elsewhere.
Fifth, Australia’s major political parties are still pro-immigration.
Sixth, we are a young nation that is resisting the ageing process better than others. This is in no small part due to young, skilled immigrants.
Seventh, our government debt is low. The combined net debt position of all Australian governments – state and federal – is still only about 20 per cent of GDP, compared with 80 per cent in the United States. This gives us more fiscal space to move should we encounter another global shock.
Does this all sound a bit Pollyanna to you?
Yes, yes it does.
- First, the US economy is picking up. And?
- Second, China slowing is not good for Australia in any way thanks to our “mining-led growth”.
- Third, longest ever growth cycles are closer to the beginning or end?
- Fourth, Australia’s labour share of income has collapsed, thanks very much.
- Fifth, Australia’s pro-immigration politicians are on a hiding to nothing and the first one to tighten the intake will win the next election.
- Sixth, we are an aging nation whether others are aging a bit faster does not change it.
- Seventh, government debt is relative and, owing to its guarantee of our enormous private debt, it is already high. If it weren’t we’d already be spending given GDP is terrible.
MacroBusiness Industries can neither confirm nor deny the deployment of several Spruikbot Telephunken U-47’s to the Lowy Institute and Flufferfax:
