Australia’s rat wheel economy spins out of control

The message in yesterday’s Australian GDP is as loud and clear as it is widely ignored. The national economy is now running tilt so you can go backwards. Indeed, we’ve created a perpetual motion, rat wheel machine, force-fed by empty calories.

GDP per capita is now trending towards perpetual zero:

While wage growth collapses:

What’s happening here is not at all mysterious. The commodity income rebound since 2016 has peaked. But we’ve kept feeding people into the economy, diluting the profits.

The resulting population growth has force-fed unproductive sectors such as retail and banking. But even these are steadily becoming less profitable as income is dispersed ever more widely and shallowly just as peak debt kills demand.

That demand shortfall is being offset by unproductive and profitless government spending. Some will add productive capacity in time but much of it is spent just to keep the wheel spinning.

Add to that a whole series of rent-seeking sectors that suck profits out of the economy to no purpose. We produce energy only to offset export losses for the gas cartel. We produce too many houses for people that don’t live in them. We produce education for the dumbest foreigners not to make ourselves smarter. We produce dis-economy infrastructure that is crush-loaded before it opens. We produce dirt only to fund wage rises for bureaucrats.

And here’s what it does in green and red ink. Planet Earth is enjoying a spectacular profits boom as Australia rips backwards:

Recent forecast changes by sector and country

And don’t forget that the above has transpired amid a serendipitous mining profits spike. Now imagine what it’s going to be like ahead as that boom goes bust with a slowing China.

We’ve created a near perfect profitless economy with no productivity, no competition, no dynamism, no recessions and no hope. There are three beneficiaries to this Catherine wheel of stupidity:

  • pollies get to point at headline numbers and claim that they are good economic managers;
  • rent-seekers in the narrow benefiting sectors get easy (if diminishing) profits growth;
  • the Fake Left gets to feel good about not being “racist”.

Meanwhile the vast majority of Australians pay with their quality of life for the pathetic vanities of this preening elite. The implications are obvious:

  • more anger;
  • more government turnover;
  • more condemnation of business;
  • more bad policy;
  • more loss of living standards.

David Llewellyn-Smith is chief strategist at the MB Fund which is currently overweight international equities that will benefit from a weaker AUD so he definitely talking his book. Fund performance is below:

January Performance

If these themes interest you then contact us below. 

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. 

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. I struggle to identify a resource we are not frantically selling off to the detriment of future generations. Energy. Education. Land. Living standards. Room to move. Habitat, water and climate. Freedom to choose our future path. Luck.

    We are – were – have been – a lucky country.

    And we are run by third-rate people who are just about to burn through the last of our luck.

    • The full Donald Horne quote is “Australia is a lucky country run mainly by second-rate people who share its luck”.

      • He said he was infuriated by the self-congratulatory use of the term. How right he was.

      • Serves him right for using the wrong word. Instead of “lucky” he should have used “arsey” and then everyone would have understood his point. Being “lucky” is generally viewed positively but being described as “arsey” suggests that the outcome is somewhat undeserved.

      • So those with a short attention span heard that ‘Australia is a lucky country’. Which is a good reason to have a beer and listen to the cricket.

    • “We are – were – have been – a lucky country”

      You mean, “We are – were – used to be – a lucky country”?

      • I reckon our luck is still holding – still haven’t hit the wall – something may still come along and save us like always. But surely we are on borrowed time by now!

      • billygoatMEMBER

        Our luck is still holding.
        The Chinese love our homes, welfare, public assets, schools, universities, hospitals, natural resources, businesses, corrupt govt officials and money laundering banks etc etc etc.
        Whats not to love about this country?
        They don’t discriminate between sh$t suburbs, snapping up homes and property from Toorak to St Albans in a days shopping!
        We really are lucky cos they buy seemingly indifferent to the hateful, racist heart at the core of every Caucasian Australian.
        Lucky they are immune to our generational hate of anything Asian – see Yellow Peril! Although as a nation we’re blind to the effect while holidaying in the region??
        We welcome them as neighbours marvelling at the wealth that allows a 1-6 bedroom home sit empty while same streets littered with white folk sleeping rough.
        Lucky for some anyway.

      • ErmingtonPlumbingMEMBER

        We still are lucky,…we’re a large resource rich island /continent with a relatively small population.
        We are one of the very few countries in the World, that could totally “go it alone” if we had to (defence might be an issue without effective Nuk deterrent though, in such a scenario)

        There are Democratic structures within the ruling Parties that could be taken advantage of by the population, to force a greater distribution of Australia’s lucky endowments,…rather than flogging it all off in a fire sale to foreigners.
        People seem to bussy planning their next exciting purchase of “cheap” electronic baubles and trinkets online, to actually participate in our democracy.

    • Kormanator_T800

      The luck has run out. From this morning’s Fairfax paper:

      Productivity falls for first time in 7 years

      GDP per hour worked, the common measure of worker productivity, fell by 0.1 per cent in 2017 on average compared to 2016. Workers worked more hours which lifted incomes but produced less output per hour. Productivity usually rises thanks to technology.

      • PlanetraderMEMBER

        Some time ago MB posted research by AMP that showed levels of financial stress on employees and the deleterious impact on productivity. Not hard to run a line between increased personal financial stress and falling productivity.

      • The Traveling Wilbur


        That’s what happens when all the 7-11 slaves start recording their actual hours.

      • “That’s what happens when all the 7-11 slaves start recording their actual hours”


    • ErmingtonPlumbingMEMBER

      Whether we are run by 1st rate or 3rd rate people is irrelevant when they are not held to account by an apathetic people, who love to complain but rarely participate and take their Democratic duty seriously.
      Less than 120 thousand Australian citizens,…members of a Political party,…lazy and pathetic.

      • The people need educating. What is a true democracy. The entire Australian political system should not continue to be legitimised. People should revolt. When it comes down to it most Australians realise that those at the top are beyond their influence or control even from senior ranks of the grassroots.

      • I don’t know that joining a party means people have a stronger voice. My own experience is that for most people the right place is not to fund the election-junkies nor directly assist them. Stay independent and assess each promise on its merits.
        Be cynical of anyone wanting your funds to further enrich their own life.
        Fly the black flag – stay weird and adopt the the Hunter s Thompson compound.

      • Invreasing politicsl party membership would only encourage the politicians. Ego driven power trippers you would not invite into your own home. I dont understand people attracted to Canberra at all and certainly dont wish to spend more time with them.

    • Couldn’t agree more.

      Check out Doughnut Economics:
      This model ‘allows us to see the state in which we now find ourselves’. Source: Kate Raworth and Christian Guthier/The Lancet Planetary Health

      The model is a great repesentation of how we are ruining the world in the desperate and futile race for excessive wealth.
      The diagram consists of two rings. The inner ring of the doughnut represents a sufficiency of the resources we need to lead a good life: food, clean water, housing, sanitation, energy, education, healthcare, democracy. Anyone living within that ring, in the hole in the middle of the doughnut, is in a state of deprivation. The outer ring of the doughnut consists of the Earth’s environmental limits, beyond which we inflict dangerous levels of climate change, ozone depletion, water pollution, loss of species and other assaults on the living world.

      The area between the two rings – the doughnut itself – is the “ecologically safe and socially just space” in which humanity should strive to live. The purpose of economics should be to help us enter that space and stay there.

      Raworth makes a key point:
      The aim of economic activity, she argues, should be “meeting the needs of all within the means of the planet”. Instead of economies that need to grow, whether or not they make us thrive, we need economies that “make us thrive, whether or not they grow”. This means changing our picture of what the economy is and how it works.

  2. Australia today is probably what Zimbabwe and India were like just after the British left. The systematic corruption of institutions. The squandering of potential. The illogical policies. The out of control population growth. The illegal buildings. The lack of land reservation for future railways and school ovals.

    • Argentina might be a better example. It was once one of the wealthiest countries in the world with abundant natural resources. Reduced by cronyism, pandering to special interests, political instability and debt. Sound familiar?

  3. We’ve created a near perfect profitless economy with no productivity, no competition, no dynamism, no recessions and no hope. The “no hope” part is the most troubling.. While traditional mainstream parties are in full retreat across Europe, it’s business as usual in this country..

  4. proofreadersMEMBER

    “We’ve created a near perfect profitless economy with no productivity, no competition, no dynamism, no recessions and no hope.”

    Gold, gold, gold to Straya.

    • Notice the deflator the ABS used for real domestic demand, 1.2 % , that feels about right. That is what the working person’s GDP is without us trying to bring some Chinese demand into Australia.

  5. Mining BoganMEMBER

    So, are we third world yet? I’ve got a collection of nice peasant hats that I think look quite spiffy. Been dying for a chance to wear them to the footy.

  6. reusachtigeMEMBER

    Oh FFS you negative nancys! Australia is a great place to live with growing vibrancy and much profit to be had for people who think right. Losers!

  7. Could MB give us national income divided by population. GDP is an increasingly useless figure as we own less and less of our own resources and other assets generally. People need to be made acutely aware of the difference between income and activity and why it matters. GDP is now near useless as a guide to how we’re doing.

  8. JulieMacCallop

    What really annoys me the most is watching liar Morrison get up and tap himself on the back – making false claims about wages and the economy. Political question – who is electing this clown into office and how/where do we campaign so that he doesn’t get re-elected.

    • Greedy selfish money chasers from the Shire.

      Common statement from the shire “my house went up more than I earned this year” and the ten years before it.

      No different to the rest of us wrecking Australia voting Labor or Greens. Same result.

  9. Hill Billy 55MEMBER

    Get ready for an August election. It will be the only way Saint Mal can fend off the troups and hope for some joy at the ballot box.

  10. Would be interesting to see other high commodity export / high GDP importing (immigration) driven countries like Canada included…

  11. Really anyone under 30 ought to consider, if they can, leaving the country for their own future.
    The intriguing question is why this data has not translated into a more bitter political scene. By rights it should, but somehow the same pretend politics is being played out.

      • desmodromicMEMBER

        My 20-something is heading to Europe with partner. Wages for an engineer are as good or better and the cost of living is half.

      • reusachtigeMEMBER

        Achievers would never think of leaving Australia as it’s a great place to get ahead, although once I retire I’d probably move to Thailand as there would be more opportunities to get ahead there for an older guy.

      • BaldbadgerMEMBER

        I fixed your spelling mistake Reusa:

        Achievers would never think of leaving Australia as it’s a great place to get ahead, although once I retire I’d probably move to Thailand as there would be more opportunities to get HEAD there for an older guy.

      • Belize is English speaking and is great. Bit of perspective being lost imo.

        Australia is still the best country in the world. You’ve just got to get out of Sydney and Melbourne.

        Save the rest of Australia by voting against population growth.

    • And anyone retired. Why spend your life savings on Australian taxes and charges, high energy and grocery costs, high insurance, the list goes on.

      • HadronCollisionMEMBER

        I think the clowns at Money Morning / Port Phillip Publishign had something ages ago about places to go for low cost, quality of life, weather, speaking Engrish
        – costa rica
        – malta

        can’t remember where else

        Me, I’d be inclined toward Spain – easy access to the Pyrenees and Pro Town Girona and watching Le Tour
        But then you need to speak Spanish (I mean, I speak survival spanish but you need to learn and I am getting old)

        I suppose you could get away with France
        But, you know, le terrorisme

        So, who le fk knows where

        We’re teaching our kids French , Spanish

    • LNP = Labor = unions. All the same.

      I just can’t see why people that understand what’s going on don’t take the simple step.

      Vote Hanson or lose your country.

      • blacktwin997MEMBER

        @Ric for what it’s worth, the SSAA have and still do promote a ‘put the majors last’ voting strategy. Even if you don’t like firearms it’s another way to get involved. Also, firearms.

  12. For me Australia’s problems all start with the “Vision” thingy.
    What do we want Australia to be in 30 years time?
    What specific problems do we want to fix over the next 10 years?
    What educational changes are required to achieve our goals?
    What tax / Industrial policy will be necessary?
    Without the vision thingy we’re a bit like a rudderless ship getting tossed and turned in a global storm yet never able to ask simple questions like “do we even need more global capital?.human or financial?
    One thing I know for certain is that most Aussies don’t share my views, don’t share my values, don’t share my vision, but that’s not whats important, because it’s their vision that they need to focus on creating and it’s their vision that is desperately needed.

    • Visions are there, perhaps millions of them, but people do not agree on which one to adopt, let alone enforce.

    • drsmithyMEMBER

      Vision ? Strategy ? Planning ?

      That’s meddling big government commie talk.

      Next thing you’ll be suggesting we need more democratic systems so the people get more influence over how the country is run. That’s how it starts.

      We need to let the market decide where the country should go.

      • That’s meddling big government commie talk
        Nah not really,
        The beauty of a shared vision, is that it does not have to be imposed upon you, the actions to facilitate the vision are usually fairly obvious therefore implementing the obvious becomes the job of the government..
        think about how many departments in Canberra can be completely eliminated because they’re simply not part of our collective vision, in this sense you take control by having a shared vision, it’s because of this focus that you can generate sustainable value….hey but like I said that’s my vision thingy which Aussies in general don’t share ….however what’s Australia’s vision? Maybe it involves a meddling big government and lots of commie talk

      • drsmithyMEMBER

        My first post was obviously sarcastic, and I don’t disagree with you in principle, but…

        Firstly, you’ll never have a 100% “shared vision” of anything meaningful/implementable.
        Secondly, you can’t implement a “shared vision” without turning a few knobs and pulling a few levers (taxation and subsidy being the most obvious, but obviously a lot more including regulation, public services, labour laws, etc) and there’s a sizeable chunk of people for whom that sort of “government interference” is fundamentally wrong. So, by extension, any attempt to actually create and pursue a “shared vision” is at its core a manifestation of “big government”. This is the logic they use to outsource and privatise more and more government responsibility.

        I made my first comment with tongue in cheek, but these people are real, very influential, and mostly responsible for destroying the western world.

    • Ronin8317MEMBER

      The current ‘vision thingy’ is a vassal state of China, and our politicians are helping it along without realizing it.

      • Maybe we’re just good at being a colony, or maybe we’re just thinking “third time lucky”
        I don’t know, personally I don’t have a problem with the raise of China quite the opposite, I applaud it, they’re defining and building their own future and it’s great that we can ride along on their coat tails for a while….but is that really our long term vision? is that the Australia that we want?
        In some ways it’s the ability to say NO while times are still good that define our nations character, knowing which road we simply don’t want to take is what enables one to say No. Saying No while you still have other viable choices is much easier than saying No when you have no other choices, but at it’s core that is the vision thingy…which road do we want to take?

  13. DouglasMEMBER

    This is great comment. However I sat with a Liberal party strategist and a couple of other punters at the pub last night who claimed that the economy was doing well. Also last week I met a famous former Labor foreign foreign minister who claimed the same. Ross Garnaut (and yourself) advocated tariffs to zero whilst no one else was doing such ridiculous policy. This replaced a diversified economy with a real estate and services and government- based economy. The chickens are coming home to roost with the current account deficit and trade deficit rising rapidly again even with modestly high iron ore prices and LNG exports kicking in. If interest rates rise then how does it work with Sydney Melbourne and Canberra chock full with consumers of overseas produced goods and the health system running on foreign inputs with the baby boomers demanding the best?

    • reusachtigeMEMBER

      Yep, right minded people who aren’t ill of mind know that our economy is brilliant!

    • ErmingtonPlumbingMEMBER

      “advocated tariffs to zero whilst no one else was doing such ridiculous policy.”

      How do you avoid getting swept up in such tornados of misinformation,…when drinking pi$$ with these Economic “heavyweights”?

    • SupernovaMEMBER

      An OK comment thanks. May I just add: Australia joined the WTO (World Trade Organisation) from it’s inception from the 1st January, 1995 under the Keating Government (1991-1996). The rules of the ATO have not been (were not negotiated) in Australia’s favour, yet we are fed a diet of how great it is to be living with such open boarders by our “absolute-bureaucracy”. The thing is why have we currently so many disputes when FTA are supposed to be in our favour:
      Under the well functioning tariff system Australia (I agree) had a more diversified economy with few disputes and we never had to deal with ISDS’s a secret UN court dispute settlement system currently costing us hundreds of millions in legal fees.

      • ErmingtonPlumbingMEMBER

        Ding, Ding, Ding, Ding, Ding, Ding, Ding, Ding,….What this guy said.

    • That would be politically improper. More appropriate terms would be;

      Economy on diet
      Low-calorie high-fiber economy
      Health conscious economy
      Economy for athletes
      Healthy economy
      Economy of longevity

      • TailorTrashMEMBER

        IKEA economy ….go to any store and marvel at the volume of imported flat pack chipboard that is bought by recently arrived soon to be citazens on credit cards ….sums up Straya perfectly.

  14. An angry piece.

    As a Tyler Cowen fan I’ll settle for The Great Stagnation in the Age of Complacency. She’ll be right mate 😉

  15. I’m going to steal ‘rat wheel economy’ for my private lexicon. Beautiful description.

  16. – more anger;
    – more government turnover;

    I assume this means the turnover of successive governments as the largely ignorant, dumb and manipulated voting sheeple of Australia think that any of the major parties are capable of fixing the mess that we are in and the even bigger mess that we are heading towards.
    All of this has been in the making for at least the last 20 odd years since Howard started his 11 year term.

  17. Speaking of the elite; I will write a reminder note to myself to buy a few good quality machetes and maybe a samurai sword (relatively cheap, silent, low maintenance and do not require ammunition) should the time come when enough voters ARE angry enough to rise up and teach the greedy elite a “lesson”.
    Though I doubt I will live long enough to see it happen.

  18. Wow this Boomer government could not have done a better job over the last 15 years of F#$king up our national economy and society for the next generations.

    Talk about eat your offspring. incredible

    • Most of the politicians belong to Gen X and Gen Y. If it were all down to generations and not class, they could outvote any remaining Baby Boomers. Why haven’t there been any changes for the better?

      • Most of the damage has been inflicted by the boomers…Howard, Costello, Abbott, Trumball…..they ARE the ruling class!! the young are merely pheasants

  19. Jumping jack flash

    So accurate!

    The problem of course is the debt. Huge mountains of the stuff that makes everyone grabby and increases our costs of living without actually increasing wages, where it counts, or anything else for that matter. Everything stops and waits while it is paid back.

    Once we get the huge pile of debt out of the way, we can focus on actually repairing the economy to make it functional again.

    This ridiculous ponzi we call an economy comes at massive social cost and is endorsed by the banks and the government. It only works without flying apart in a storm of rising interest rates because the people in charge selectively choose how to measure the risk of it (the LVR is gold maate. Our houses are worth what we say they are, the debt attached to them is below that magic number), and ignore the inflation caused by it.