Welcome to the Great Australian Income Depression

Yeh. The elite will tell you that you’re a whinger or a racist. To suck it up and move on. But you aren’t. What has happened to Australian income is not only abnormal. It is historic. Worse, it is only half over.

The OECD describes real net income per capita (RNNPC) in the following way:

While money may not buy happiness, it is an important means to achieving higher living standards and thus greater well-being. Higher economic wealth may also improve access to quality education, health care and housing.

Household net adjusted disposable income is the amount of money that a household earns, or gains, each year after taxes and transfers. It represents the money available to a household for spending on goods or services.

In other words, it is the best measure of per capita living standards in the national accounts.

Why is that you didn’t know that? Why are you plied with GDP and other useless gauges instead? Simple. GDP is easy to generate for politicians. You just need more imputs for more outputs. The challenge is to get more from the same number of inputs, that brings home the bacon in the form of rising living standards.

Pollies hate RNNPC. It means tough decisions and sectional losers for collective gain. It means they have to actually lead rather than lie, something our current scum are incapable of. So, instead we’re stuck with GDP as a measure of your living standards even though it is so manipulated these days that it is not only misleading, it is actively hiding an historic  crash in your living standards on a par with the Great Depression.

How can I say something so preposterous? It’s a simple fact:

In terms of the best measure of living standard that we possess, real net disposable income per capita, post-GFC Australia has its nose just in front of the US Great Depression and it’s about to fall behind.

Yeh, that’s right. All of those sepia stained photos of shabby men in trench coats lined up at soup kitchens and in the dole queue. That’s you.

How can that possibly be? How can you not know it?

It’s because the structure of economic slack is today different than it was in the 1930s. The “output gap” – a ratio of excess supply over demand – that drives high unemployment is more hidden. In the 1930s, if an industrial ecoonomy ground to a halt then mass layoffs of blue collar workers would result. It was obvious what was happening to all.

These days it is very different. Our jobs are much more in the services industries which can limit hours more easily without doing layoffs. It can also slash or steal wages more easily, another effectively hidden job cut. As well, if you are unfortunate enough to lose your job then you can work for Uber. Sure, your living standards collapse but you’re not some obvious problem for everybody else.

And so we have The Great Australian Income Depression hidden in plain sight.

What’s caused it then? How can be addressed so that living standards rise again? Who is to blame.

It began with the GFC. That was the first signal that the pretend economy that Western nations had created would crash as they outsourced their real economy to China. For a short while Australia was protected from that owing to its massive mining boom. But when that went belly up in 2011 the real trouble began. The crash was expressed through a terms of trade shock that didn’t end until 2016. Falling iron ore and coking prices represented a massive national pay cut that, over time, was distributed nation wide in falling profits and wages.

But that was four years ago and those same commodity prices have boomed ever since so why hasn’t the income depression ended, I hear you ask? There are a number of reasons but the most important is captured in the following chart:

Australia has carried a massive output gap – that is, too much supply – ever since the GFC but much more so since 2011 as the twin growth drivers of mining and houshold debt-funded consumption both stalled.

As you can see, before 2008, as a nation we always allowed immigration to fall when the output gap appeared, to prevent too much competition in the labour market.  But afterwards, we did the opposite and ramped up immigration. Worse, the sources of immigration deteriorated radically from highly paid, skilled workers into desperate and cheap warm bodies from anywhere in the Third World.

Under this macroeconomic regime, any and every time that eceonomc slack appears it will always land on the labour market in the form of weak wages.  The rest is history: a permanent income depression for workers as every time the output gap closes, more cheap foreign labour floods in to widen it again, despite the demand that they also bring.

So, what began as an external shock under Labor, which was too idiotic to cut immigration lest it be labelled racist, has since morphed into a worker-devouring Kracken of permenent Coalition policy that today has Australia rivaling Great Depression USA for falling living standards.

Don’t be fooled into thinking that it had to be this way. It didn’t. Although there was always going to be some adjustment after the mining boom as national competitinvess was repaired, the use of mass immigration to hide the correction has ensured that certrain sectors are protected while other suffer more than they should. Households and tradable sectors have born the brunt of the adjustment while property, banking and retail (until recently) were protected. This happened instead of the far better national interest policies of productivity reform, competitiveness reform and crashing one’s own currency.

Alas, the same policy bastardry it is still happening and the income depression is therefore not over. Ahead, the Chinese economy is going to slow to a virtual standstill and the second leg in the falling commosity price story will transpire, denuding the nation of huge slabs of income once again.

With the Coalition determined to pump in cheap foreign labour to support capital, while Labor inexplicably cheers it on, that will again direct all of the adjustment onto labor as Australia’s Great Income Depression runs for another lost decade.

Leaving you far worse off in terms of the magnitude of drop in your living standards than those sorry gents in the faded pictures of 1940.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

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.

Comments

    • Hey, that’s what sub-editors are for were for.
      It’s not a job anymore. Pity, good subbing can raise an article from interesting to un-put-downable. Another skill gone

  1. Superb analysis. Is this wages depression’s impact on debt growth and servicing fully appreciated? This thing is getting some momentum, dangerous times

    • Actually is global phenomena, its just that Australia is five or six years later to arrive than everyone else… and will be around fo the next four or five decades if history is any guide…

      • +1, Europe is in the middle of it right now. Much further down the rabbit hole. They just persistently grind lower.

      • I said to a friend 18 months ago, to watch what happened with the Chinese money pouring in to real estate and what happened in Canada and Ireland with their bubbles. He looked at me blankly, because he didn’t really know what happened in Canada and Ireland and only heard whispers about the Chinese Laundry.
        About a month ago, he told me he now sees what has happened and what may be just around the corner.

  2. ErmingtonPlumbing

    Late night TV is full of those”Payday loan” add at the moment.
    There is definitely a slow down going on.
    Every self employed tradie I know is saying they are the slowest they have been since the GFC.
    Everyone’s got work just not as much a usual.
    Even the maintenance guys are noticing it and yet the big New construction lay offs are only just beginning.
    It will be interesting to see how long the libs will keep talking up the economy and patting themselves on the back over some BS surplus while all this is unfolding.
    Even without a sudden GFC style crash the Economic grinding down of more and more people is becoming undeniable.

    Meanwhile the big debate raging on Twitter is whether Leigh Sales is guilty of heresy for calling the Current fires a “Bushfire Emergency” instead of a “Climate Emergency”
    Apparently Phil Coorey is a hectic now too for calling for calm.

    These bush fires have been turned into a political Circus.
    Into a false Left/Right Dichotomy on CC.
    The stuff coming out of Barnaby Joyce’s mouth is clearly designed to create and maintain political polarisation.

    From [email protected] marriage to Climate Emergency its all just one big Fking circus after another.
    Anything other than actually holding real Power to account for its failures in addressing inequality in one of the most richly endowed countries in the world.

    https://twitter.com/leighsales/status/1194152737778192384?s=19

    • Payday loans, and dubious insurance are all over afternoon television for the last 12 months too.
      Amazing number of ads.
      Must be a significantly sized target audience.

      And yes, it’s been discussed around our household ( by those in their early 20s) that Barnaby Joyce is a diversionary tactic.
      It’s certainly being turned into a circus by some very unpleasant people/ politicians, but I get the feeling that many people are disgusted.

      • Not disgusted enough and certainly not united to make it a ‘catastrophic fire danger’ for the offices of the current political elite… as such, as the old saying went in the old country: dogs are barking as the bear is passing by…

        • Perhaps not enough people yet.
          But we are seeing local demonstrations( all age groups involved) about planning matters, the big climate demonstrations in the city.
          A year ago- nada.
          Every time l get on the train, someone is there with a placard going to some form of protest.
          At least some people are getting into the early stage of protests. A year ago they didn’t care enough to bother. Perhaps it will fizzle out into self serving disinterest, but perhaps people are getting a taste for it too.
          Thr French Revolution did not happen overnight. And we are also seeing the constant ridiculing of the elite that was one of the first baby steps of that revolution.

        • Agreed EP.
          Worked in community health for twenty plus years, involved in reforms, creating ideas( and following through I might add) , programs,teaching and a lot of listening,
          Well aware of the effort and time frames, and how easily things can get derailed.
          But, you know, sometimes you get a win.

    • How does one become a Payday lender? I’ve got a bunch of worthless cash sitting around, maybe I can extract some profits from other people’s poor decisions?

      Maybe MB fund should get into it and really maximise our returns.

      I’m sure the feeling that you are human scum wares off eventually?

      • reusachtigeMEMBER

        The human scum are those coming to you to scab money. Never ever forget that and you’ll do just fine.

        • Well, I’m sure you can write off expenses such as those incurred by skilled Ukrainian kneecap surgeons on your businesses. Then you can also branch off in ‘off the shelf’ ACL replacements, meniscus replacements and many other highly sought after specialized spare parts.

      • You need to have no morals, big muscles and preferably a deadly weapon of some sort.

        Then you’re ready to get into it

    • @EP
      Agree. It comes across as a stage management of yet another weather ‘event’
      News media accross the board prepping punters for calamity….has me musing for 5 mins or so.wtf is really going on? Then I get on with my day so I can pay for where I sleep at night.

    • These bush fires have been turned into a political Circus.
      Into a false Left/Right Dichotomy on CC.
      The stuff coming out of Barnaby Joyce’s mouth is clearly designed to create and maintain political polarisation.

      From [email protected] marriage to Climate Emergency its all just one big Fking circus after another.
      Anything other than actually holding real Power to account for its failures in addressing inequality in one of the most richly endowed countries in the world.

      I said to the missus last night that no matter what people said about Bill Shorten, that if Labor were in and the bush fires broke out, there would be a very different way of handling this emergency going on right now. I just cannot see him politicising the fires in the way the Liberals have or blaming The Greens or Labor for it.

      I really think Bill would have just got on with the job and deployed resources to help make it happen. But of course Labor would have sent the country broke – according to the Lib supporters..But geez, how good is a surplus?

          • Don’t underestimate your achievement in achieving this clarity.

            If I had just posted on my own, people would’ve read my comment and thought it’s just sensless-potty-mouth—b!tch-ranting. But posted below your contribution, it is an insightful political and social observation. 😘

        • Yes, but Shorten wouldn’t have been as comfortable embracing a poor old coot who had lost his worldly belongings in the fires.

          Scummo is definitely a superior ‘fauxgan’ than Shorten who looks better suited to the cocktail circuit. Have you seen Scummo with a beer in his hand? It almost looks convincing.

        • Shorten would have won if it wasn’t for journalism. Labor needs to call the media out as a political party and journalists as the most harmful political operatives in the country. That was one thing the review got right:
          Labor “must develop a comprehensive strategy for message defence and combating disinformation, which should include full-time resources dedicated to monitoring and addressing false messages”

      • I think they should ban coal exports, and instead chop down all those burny trees and send THEM off to the Chinese to burn in their power stations in China.
        Just yesterday there was a bush fire near my place. Talk about a lot of smoke going up into the ozone layer. They told me tobacco is bad, and then this happens. Replace it all with concrete and then the problem is solved.

        Is it just me?

    • “Both sides” are extreme? No, one side is denying any link between climate change and the fires despite all evidence.
      She simply cannot do her job. She doesn’t understand policy detail, doesn’t understand economic linkages and has no interest in it and thinks if she places herself in some self deluded “middle” and poses one sides propaganda to the other side that makes her a good journalist. No that makes you an amplifier of HS. interviews with Shorten during the election were a disgrace.
      You are right that it isn’t a matter of left and right. It is a matter of chronically bad journalism. I still think there should be a royal commission into journalists.

      • I personally think there should be an RC into the effectiveness or otherwise of RC’s.

        But the ultimate problem is expecting private profit seeking organisations or people to act in the public interest. When journalism was essentially a cash cow due to high distribution costs they could afford to provide high quality journalism in the public inerest..
        In the current zero distribution cost environment high quality journalism is a loss making proposition, so only occurs when someone with an agenda is funding it. How would you expect an RC to change that?

        • In the meantime call a moratorium on journalism in Australia.
          A lot of people say it is a funding issue etc. But I don’t think it is. It’s the people who seem to be attracted to journalism these days. They aren’t interested in public policy, economics, business, science.. ie. anything. They are interested in “journalism” ie. nothing; putting there own mark on a story, making predictions etc. Maybe its a symptom of the present day narcissistic culture, but anyone who wants to be a journalist shouldn’t be allowed anywhere near the media. Take people with expertise and careers behind them who are interested in the topic send them to a 1 week reporting course. It’s not a funding issue.

          • “Take people with expertise and careers behind them who are interested in the topic”
            These people are probably already earning more than journalists, and most likely would be the least interesting writers you could get so no one would listen anyway.
            We already have publications written by experts. They are journals, and no one except other experts are remotely interested in reading them.
            Or prove me wrong and start up a media empire. But based on the pushing of subscriptions here, don’t expect to be making a fortune or employing a vast array of experts any time soon.

            Edit:
            https://www.payscale.com/research/AU/Job=Journalist/Salary
            40-80k a year.
            How many “Experts” are going to work for that?

          • A lot of people say it is a funding issue etc. But I don’t think it is. It’s the people who seem to be attracted to journalism these days.

            I believe it is the infection of the “balance” doctrine. Reporting must be “balanced” rather than “objective”.

            It’s not just actual journalists, either. Articles at MB frequently fall victim to the same principle.

    • Yep … its a Post-Truth Crazy Clown World.

      Telling the truth nowadays will get you de-platformed and fired.

  3. That piece could have come from “Hannity” on Fox, on another topic, of course. But the sentiment is just as correct.
    I can see and feel what’s happening, and I shouldn’t. So I wonder how those who can’t cope, will.

  4. So Australia blew our “once in a lifetime resources boom on 5 million third world unskilled non assimilating migrants”.

    Yep, that about sums it up.

    In the last decade – in approximate order:
    1.42 million Chinese mainland born communists.
    (Yep and 1.14 million are still as Chinese sole passport holding foreign nationals, despite sucking up the PR welfare & Medicare as a PR, or living & working illegally as a TR/SCV or TV).
    An entire underclass of Chinese Hukou internal Illegals, old, sick, misfits, money laundering mules, petty criminals & vice workers trafficked in a conveyor belt from their Chinese mainland slums to an equivalent Chinese criminal syndicate run slum in Sydney or Melbourne.
    $2k or ¥10,000 buys an Australian PR in Guangzhou.
    Posted here before on this forum.
    We aren’t getting the best of brightest Chinese.
    We are getting their lowlife. The Hukou tier 1 city internal illegals, slum clearance – exported by the Chinese government and the Chinese trafficking syndicates to be some other countries burden.
    China has 102 million Hukou internal illegals to cleanse out of their tier 1 cities and so far have only exported 9.2 million. Expect many more.

    890,000 Indians – PR, TR, SCV NZ loophole, TV..
    Recruited from the Mumbai & Delhi ghettos, the Punjabi rurals & the Calcutta traffickers. Exactly the same.
    The misfits, useless, the mummy boy, the old, sick and social burden. Exported to the west for the remittances, then once established as an anchor, the chain migration to shift the aged & sick welfare & health care burden to some western country.

    640,000 South East Asians, Vietnamese, Malay, Thailand, Indonesians. The same. The Isan bargirls abandoned mothers. The Vietnamese petty criminals & south East Asian slum & rural itinerants & ‘partners’

    620,000 Middle Eastern – Lebanese, Egyptian, Iraqi, Syrian, Jordanian, Turkish. Here to fraud everything from Centrelink to daycare.
    230,000 Pakistani, Nepalese, Bangladeshi.
    The same.
    93,000 Africans, many family of war criminals or gangs that bribed or intimidated their way to the front of the UNHCR queues.
    And then a couple of hundred thousand as a mixed bag of UK & Eurotrash – misfits, unemployables, or the South American offspring of the San Paulo criminal class and the others making up the remaining million of so of other third world lowlife detritus.

    The vast majority who entered by bribes, fake doc,
    fake health checks. lied or cheated their way in on a visa pretext exploiting our broken & corrupted visa system.

    In another view – this time by visa category & skills as a cross check, it is going to take 50 years to absorb the impact of these Labor & Liberal immigration mistakes.

    These migrants are going to be an inter- generational burden on Australia for decades.

    🔻78% of the 1.9 million PR third world are unskilled & mostly welfare dependent.

    Who could claim we have ‘a skilled migrant intake’ when over 75% are unskilled third world non English speaking aged or child dependents?

    Old aged sick useless or very high breeding rates now spawning an onshore 2nd generation non assimilating migrant welfare underclass that will expand the impact.
    They are an inter generational time bomb.

    🔻The TR/SCV is a bigger and worse mess.
    Over 90% of the 2.56 million TR / SCV third world are totally unskilled & at least 1.5 million are on some visa pretext to live & work here illegally on a virtually permanent basis.
    Until they also get the PR and can join in on the feeding off Australian taxpayers.

    🔻Over 90% of the 0.44 million Tourist Visitors (5% of the 8.8 million TV enter to live & work illegally DHA Parliamentary Report) and they are almost all third world & unskilled.
    Plus the 65,000 Overstayers.
    => 5 million. Well over 90% third world unskilled.

    And it’s highly concentrated.

    86%+ of the third world migrants are in just 2 cities.
    -> Say 2.4 million of a Sydney pop 5.2 million. 46%.
    Nearly half the people in Sydney are non citizen foreign passport holders.

    Melbourne- some 2.0 million of a pop of 5 million.
    -> 2 in every 5 people a non Australian foreign passport holder.

    Both cities are now vast patchwork of non assimilating foreign criminal run fetid slums.
    Virtual replicas of their Mumbai, Dhaka, Guangzhou & Cairo slums of origin. Go visit Sydney west or south west sometime & see for yourself.

    Degrading Australia.

    Negative social & economic contribution.

    Pulling down Australian wages 7% in relative terms.

    Lowering our gdp per Capita by over 6%.

    Housing theft – tens of billions of foreign dirty money laundered into Australia property / over 800,000 established low level modest old units or modest houses acquired by foreign criminal syndicate cash to run as migrant only cash in hand high density bunk share.
    Where exactly do people think 5 million poor unskilled black market cash economy third world migrants on visas live & how?

    Job theft / Australia youth & mature unemployed now at 1.4 million with another 1.1 million seeking work.

    Overloading our housing, transport, infrastructure, dams & public services.

    Destroying our standard of living.

    Both major political parties, bent, bribed and corrupted by foreign & onshore vested interests, lobbyists, Aldi shopping bags stuffed with cash etc..
    deliberately imposed this social & economic destruction in the trafficking & importation of 5 million third world unskilled non assimilating migrants.

    There never was any consultation or a mandate from the Australian people for this migrant intake.

    Australia is now virtually in recession.

    Yet hundreds of thousands of new third world migrant arrivals each year still continue to pour into the Sydney and Melbourne migrant slums.

    When do Australians wake up & do something about it?

  5. Very good analysis.

    The problem of wage stagnation per capita is compounded by the asset price inflation that has occurred, which over rewards the owners of capital and makes debt slaves of everyone else.

      • Nah, it *was mad by design*… it’s just gone full bore.

        The outcomes were never anything different than what we’re seeing today. It is all by design.

    • 100%. Of course, this ‘dynamic’ is wholly unsustainable as rising debts simply consume static incomes and then there is little or nothing left to save or spend on goods and services. And then ‘capital’ gets rooted as earnings at companies naturally decline.

      (If the system isn’t ‘fixed’ by the pollies then it will end up fixing itself. Revenues cannot be created out of thin air – only ‘money’ can)

  6. reusachtigeMEMBER

    #fakenews and #alternativefacts! Everyone I know, and I know the right sort of people, are extremely rich from property investment. It’s not our fault if some people just aren’t good enough to succeed at anything.

  7. According to Roggeveen, challenging hyper migration and overloaded cities is like calling for a “Brexit”. For Hysterical Hartcher, it’s like reverting to “White Australia”. Via Rob Stokes, only “NIMBIES” or “Baby Boomers” challenge growth or density.

    Not only do the peasants have to suck up the low wages and falling living standards, they’re expected to absorb fresh doses of contempt and abuse from the ruling classes.

  8. The importance of commodity exports cannot be overstated. Yet there are those active in green and climate groups that would happily legislate to ban all exports of coal and lng and are only a step away from terminating all other resource extraction activities. These interests pose a threat that must be countered. Or the charts sbove will look like the good times, the ones to follow, the end times.

    The immigration angle is interesting however I suspect high levels of immigration now embedded.

    • Well, given the (minimal) returns we get from LNG and the grief the main Eastern exporters have given by over building/committing, banning Eastern LNG exports would be a big plus.

    • Oh, here we go. I was wondering how long it would take for the overt mining-industry propaganda messaging to come back.

      It’s actually taken less time than I thought – about 4 days?

      • Not mining-industry propaganda. Australia’s economic interest. As the article and its accompanying charts show commodity exports are vital to national wellbeing – albeit the full effect diluted by high levels of immigration (the pie needs to be shared by more).

        These last few days have witnessed high profile political and media identities in a frenzy about climate change and the need for Australia to act against our fossil fuel production, consumption and exports. Trust me, an economic disaster if this mentality took hold. We would all be a lot poorer.

    • Regrettably I have to concur:
      – Ban fossil fuel mining / exports!
      – Recession ensues
      – Unemployment hits the roof
      – Centrelink inundated with those who voted to kill fossil fuel industry (those who weren’t already collecting, that is)
      ….

    • ErmingtonPlumbing

      “The importance of commodity exports cannot be overstated”

      Yes I agree 3d,…this is why all Natural resource extraction of OUR resources should be Nationalised.
      I didn’t think we’d ever be on the same page on this issue but it seems we are.

    • “The importance of commodity exports cannot be overstated. Yet there are those active in green and climate groups that would happily legislate to ban all exports of coal and lng and are only a step away from terminating all other resource extraction activities.”

      There are lunatic voices everywhere. The instances of expression occurring by itself are not a problem.

      “These interests pose a threat that must be countered.”

      Define threat ?

      As far as I know, Iron Ore exports are still our number one export, gas is what, number 4 or 5. There doesn’t seem to be a threat at all.

      What is a threat is the fiscal behaviour of some oil & gas operations. Norway gets a bucket load of revenue from its fossil fuel reserves, us not so much.

      What seems to be occurring is that the song and dance about fringe idiots ‘as a threat needing to be removed’ is nothing more than a guise to remove proper scrutiny of said oil and gas.

      After all you’ve said, it would suggest we need to threaten oil & gas more often, particularly the mortality of their executives.

      “Or the charts above will look like the good times, the ones to follow, the end times.”

      Care to name a resources-focused economy that doesn’t become more corrupt over time?

      We need to move away from resources being of primary importance, not towards it.

      • So let me get your point here clear….

        You said the threat is people that would ‘happily legislate to ban all exports of coal and lng and are only a step away from terminating all other resource extraction activities”

        I countered, saying the threat can’t be that pronounced if we’re exporting coal and lng to our hearts content. Instead saying what you call a threat is an unnoticed fringe element.

        You decide to make me look foolish my linking art article saying that coal and lng exports are so high, that it’s leading Australia to a trade surplus.

        Have I got this right?