The Liberal Party crisis rolls on today with every man and his dog proffering an opinion. It is nearly all besides the point.
The Coalition crisis is not the result of itself. We have not churned through six prime ministers in ten years because of this latest ideological clash.
The rolling political crisis that has engulfed both parties is the symptom of an economic malaise that nobody in power understands nor has addressed. Australians everywhere are confused and angry because their standards of living are falling in front of their eyes as nobody gets a pay rise, house prices stretch away from their children and infrastructure as well as government service provision deteriorates.
Nobody has explained to Australians why any of this has transpired. On the contrary, they are constantly fed a diet of discombobulating propaganda that things have never been better and are only going to improve.
Well, they’re not. Things are going to get worse. A lot worse.
After the millennium, the economy went through the greatest mining boom in a century. That was great so far as it went. But there was a cost. A decade of growth inflated wages and input costs and the currency so much that we priced ourselves completely out of the things that we can sell overseas and compete against others selling to us (tradables)
Once past the mining boom peak in 2011 we faced a choice. It was as obvious then as it remains today that the great commodity price boom was going revert to mean. It is only halfway there today but will complete its return journey over the next five years as China goes ex-growth.
What that amounts to is an huge and ongoing pay cut for the country. We do the same amount of work to ship the same amount of dirt but we get paid half what we used to. Yet because we hollowed out the non-mining tradable sectors there is nothing to pick up that growth and income growth baton.
The appropriate policy solution to this challenge is to engineer a real exchange rate adjustment. That is to deflate your input costs and currency to the point where your tradable sectors can compete again. Investment grows, creates jobs and, over time, your improving productivity releases wage and income growth.
Instead we did the complete opposite. Panicked authorities who had predicted that the mining boom would last another thirty years stoked a house price boom. That delayed the falls in our currency and re-inflated input costs. It was complimented with a wild mass immigration program that has exacerbated the reflation of input costs but prevented any wage growth.
In short, the powers that be – Treasury and the RBA – elected to push all of the post-mining boom adjustment onto anyone that did not own land and had a salary. They chose class war over shared real exchange rate adjustment.
The result has been ceaseless political chaos. Against a backdrop of unexplained – indeed deliberately obfuscated – falling living standards, the polity has descended into permanent anger. Every election comes with a brief flush of hope that the worst is past and the new PM can fix things. A few months of improved consumption then slumps as it becomes apparent that the new is no better than the old. House prices keep stretching away from the young, wages keep falling, and services keep declining. Polls decline quickly.
Australia’s bastardised political environment can’t cope. There is no leadership of sufficient calibre to describe it and the interests that benefit from the RBA/Treasury growth model – including the media – inhabit both parties. Political parties are corrupted by a complete misread of what underpinned thirty years of growth and, encouraged by the lost RBA and Treasury, keep going back to old answers that no longer work, making themselves unelectable in spectacularly short periods.
Then the ruthless factionalsim of both parties takes over and they eat themselves alive as PM after PM is gutted and falls.
It is not going to stop until the model itself is broken. Either the next PM sacks the boffins at the RBA and Treasury, as well as trashes the interests driving the growth model, and explains to Australians the mutual sacrifice needed to repair our course, or the model itself will run out of puff as monetary, fiscal and immigration policy are exhausted.
The next PM is already dead man walking unless he tackles this head on.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
Latest posts by Houses and Holes (see all)
- Joye rides to Recessionberg’s rescue - December 6, 2019
- US jobs preview - December 6, 2019
- Russian gas pipe slammed further up Aussie gas cartel - December 6, 2019