How to prepare for the end of the Australian economic miracle

For five years now my analytic framework for the Australian economy has been signalling the end of an era. Whether it is going to end in a lost decade or a mighty crash is really beside the point (though probably both!). What matters is the economic model that has driven the economy through its 24 year expansion is fundamentally broken. It’s been kept on life support for a few years but that is only causing the structural distortions to become worse. Adjustment is inevitable.

You can pick any number of measures to make the point that living standards are falling. Leith shows that categorically today. But the point I wish to make is that this process has barely started, has many shocks that lie ahead, has absolutely nobody in control of it and those that recognise these truths will profit handsomely while most Australians get relentlessly poorer.

So, let’s go over some old ground once more. The miracle economy is the product of two economic drivers. The first is commodity exports. Resources not productivity gains have driven the lion’s share of national income growth for more than a decade. This income stream is very narrow in its natural form, dominated by only a few firms in an even smaller number of commodities. So it is shared with the nation largely via two mechanisms. The first is low taxes given the large receipts reaped from commodities by government and the second is through the private sector taking the resulting income and leveraging it up into housing speculation.