Australia - where the bloody hell were you, caronanomics and how a neglected economy is now on its knees
It's taken a tinsy inny meany little thing, less than the size of a full stop on this page to bring Australia to it's knees. But I would argue the little coronavirus has put pressure on an already pressurised economy. And at its basis is people not being able to save for a rainy day, or thinking the rising houses prices represent saving.
There's a few things bringing Australia's economy unstuck at the moment: one is an unchecked rise in property prices relative to income, fuelled by record debt and record low interest rates, which is something I wrote about here: What COVID-19, Toilet Paper and the Australian Housing Market Bubble Have in Common
Government's around the world have been relying on monetary policy to do all of the heavy lifting at the expenses of economic planning. In Australia there was no been no political will to point out that rises in housing prices have almost no relationship with rises in productivity, or improving the structure of the economy.
So all this time, and I mean the decades, houses were growing in value but we weren't actually doing anything to make the Australian economy more competitive, to broaden what we produced and how effectively we produced it. In an era of crisis - bushfires, viruses - we also had a climate change crisis literally simmering along. Australia had, and still has, opportunities to position itself, to restructure our economy to survive and thrive in that new world, but instead of doing this we sat waiting for record low interest rates, invested in homes to grow our 'wealth'. I feel little doubt that that strategy will prove at best ineffectual, at worst really, realty bad, But, on the positive it is likely to lead to the big adjustments in housing prices that many have been waiting for. Alas, many will now miss out on this in the short term because of the seriously deteriorating employment situation.
Economics 101 would suggest that borrowing to improve productivity is good, such things as a tractor to grow more potatoes, or a fancy machine to produce more widgets of some description. Borrowing to prop up house prices as though we are in the midst of a 17th century tulip-mania is unlikely to benefit any of us in the end. Because, you know it's just fart-arsing about at the expense of real change - like investing in new long-term industries which will help lower emissions and create jobs.
But, I rave on about housing prices a lot, so I'll move on to other problems I see with the economy. things. Simmering along in the background of Australia's economy was an increase in the casualisation of the workforce, including the gig economy.
Look here, a pretty colour-coded graph, or two, that explain proportion of casual workers in the Australian economy.
There's a few things bringing Australia's economy unstuck at the moment: one is an unchecked rise in property prices relative to income, fuelled by record debt and record low interest rates, which is something I wrote about here: What COVID-19, Toilet Paper and the Australian Housing Market Bubble Have in Common
Government's around the world have been relying on monetary policy to do all of the heavy lifting at the expenses of economic planning. In Australia there was no been no political will to point out that rises in housing prices have almost no relationship with rises in productivity, or improving the structure of the economy.
So all this time, and I mean the decades, houses were growing in value but we weren't actually doing anything to make the Australian economy more competitive, to broaden what we produced and how effectively we produced it. In an era of crisis - bushfires, viruses - we also had a climate change crisis literally simmering along. Australia had, and still has, opportunities to position itself, to restructure our economy to survive and thrive in that new world, but instead of doing this we sat waiting for record low interest rates, invested in homes to grow our 'wealth'. I feel little doubt that that strategy will prove at best ineffectual, at worst really, realty bad, But, on the positive it is likely to lead to the big adjustments in housing prices that many have been waiting for. Alas, many will now miss out on this in the short term because of the seriously deteriorating employment situation.
Economics 101 would suggest that borrowing to improve productivity is good, such things as a tractor to grow more potatoes, or a fancy machine to produce more widgets of some description. Borrowing to prop up house prices as though we are in the midst of a 17th century tulip-mania is unlikely to benefit any of us in the end. Because, you know it's just fart-arsing about at the expense of real change - like investing in new long-term industries which will help lower emissions and create jobs.
But, I rave on about housing prices a lot, so I'll move on to other problems I see with the economy. things. Simmering along in the background of Australia's economy was an increase in the casualisation of the workforce, including the gig economy.
Look here, a pretty colour-coded graph, or two, that explain proportion of casual workers in the Australian economy.
For many years casualisation rates have been growing in Australia. It has been used to replace jobs which would otherwise have had entitlements for paid leave, redundancy etc. Unlike countries like Mexico, where laws exist to limit companies employing casual workers who are clearly fulltime or part-time employees, it seems Australia is pretty casual about the whole thing. I know many have pointed to the fact that casuals get paid more per hour and that they sensibly put money aside for a rainy day. Except, that don't happen. On the whole Australia doesn't have savings, we have debt masquerading as savings. It may be record low debt, but it is still debt, borrowed from our future selves (hi future self if you are reading this, but can you pick up that credit card bill I left you, there's a good chap) that has just been used to make ends meet, to tread water if you like. I've used the graph below to illustrate this in previous posts, but might as well pop it in again for good measure it shows a big debt to income ratio. You see if you'd used that money to grow more potatoes you might have also had you income level rising proportionately, but you didn't, you bought some house 312 kilometers from Sydney and commute in every day.
And when you're using debt to be able to afford to stay in your home, to pay the bills - rather than roaring off into the paddock with your new tractor - and if you have borrowed against the equity in your house, which has been hyperinflated, and, to top it all off, if one or more of you household are on casual incomes, well, we're seeing the result unfold before our eyes. Casual employees having their shifts cut at a moment's notice, little prospect of finding another job in the usual three months it takes to find a job. It's all coming unstuck pretty quick. And at the risk of repeating another blog post I have on housing, if you are now relying on selling your home to cash in on that equity, well look at the stock market, housing prices are part of that same market and they will definitely fall, probably over a number of months, despite the 'house prices always go up' myth you may have been gullible enough to believe. So selling that house might not be such an attractive prospect right now. You can see the scale of the problem in the graph below ('borrowed' from the internet, but then if you take it from the internet, and then put it back on the internet, well, it's still on the internet, so it technically is in exactly the same place):
I don't probably need to tell you this isn't looking pretty.
Moving on to the gig economy. Say you bought that overpriced house (hey, I might as well stick with my housing rant) and you thought, I know, to afford this I'll just rent out the extra rooms on AirBnB and I'll drive Uber all day on the side, and I'll also borrow money at record low interest rates and invest in Dogecoins, then I'll have to freedom to say to all those stupid bosses, hey, check out my middle finger bro. Well, possibly a few months ago that seemed like a great idea, but recently Australia had a wee tourism crisis caused by the not-so-wee bushfires, and now one caused by a little, insy, but killer, bug. So now, well, after a bit of a peak a few years coin the original joke currency you purchased is limping back towards it's original value. Because, well, you know, it was created pretty much as a joke, I mean you wouldn't seriously invest in Mickey Mouse currency would you, but you went and invested in a meme, it's seriously a classic meme, I think it's quite possibly the best meme ever and that future generations will define the early 2000s with it, but it's still a meme.
Moving on to the gig economy. Say you bought that overpriced house (hey, I might as well stick with my housing rant) and you thought, I know, to afford this I'll just rent out the extra rooms on AirBnB and I'll drive Uber all day on the side, and I'll also borrow money at record low interest rates and invest in Dogecoins, then I'll have to freedom to say to all those stupid bosses, hey, check out my middle finger bro. Well, possibly a few months ago that seemed like a great idea, but recently Australia had a wee tourism crisis caused by the not-so-wee bushfires, and now one caused by a little, insy, but killer, bug. So now, well, after a bit of a peak a few years coin the original joke currency you purchased is limping back towards it's original value. Because, well, you know, it was created pretty much as a joke, I mean you wouldn't seriously invest in Mickey Mouse currency would you, but you went and invested in a meme, it's seriously a classic meme, I think it's quite possibly the best meme ever and that future generations will define the early 2000s with it, but it's still a meme.
Anyway, none of your disruptive economies are working now, who wants to get into a strangers car at the moment and where are we going anyway, and why are we paying with a dog, I thought we stopped barter centuries ago. And none of us are allowed to travel so those rooms are sitting idol, and good luck selling Dogecoins, or any other cryptocurrency at the moment, at least at a profit. You're still living in a world based on pirates where whenever there's a crisis we always go for the gold me hearties! Gold is kind of like cryptocurrency in that you 'mine' it then it has a value.
So in the end, because we just sort of let the economy meander along, and didn't really think about planning it to much - a planned economy! what sort of commie bastard are you! - we're now staring down one of the most scary precipices this economy has ever faced. I mean to be honest it probably would have gone to shit anyway but it kind of just highlights the economy's vulnerabilities. Australia's Paul Keating described Australia's recession in the 90s as the recession we had to have. Don't know if we have to have this next one, but we're almost certainly going to have it. What we probably need to think about though is, on the road to recovery, how do we set up our economy on our more stable footing, to not rely on a single country like China to produce all of our stuff, to think about how we jetset around the world, to think about the next virus and the crisis we have still not faced - the one with our climate. Because while we fluffed about blowing housing bubbles up our arses, we really forgot to do anything worthwhile with our economy and now it's just popping all over the place.
We'll just spend 100s of billions now just staying afloat. We certainly need to spend hundreds of billions, but we also have to think about all the real structural adjustments we need to make, for climate change, to keep our friends and families in employment, and affordable housing and with an endless supply of toilet paper. We need to take the time to plan for the changing nature of our economy to a modern diverse, resilient economy. We have to have a look at all that 'fundamental stuff' we've been happily ignoring for decades and decide what sort of world we'll create out of this mess. My opinion is it shouldn't be just an exact replica of the last, it should be one where we protect our planet, enjoy our houses for being houses, and I don't know, go back to working out how we can grow more potatoes for people. I think that's a blog for another day though.
We'll just spend 100s of billions now just staying afloat. We certainly need to spend hundreds of billions, but we also have to think about all the real structural adjustments we need to make, for climate change, to keep our friends and families in employment, and affordable housing and with an endless supply of toilet paper. We need to take the time to plan for the changing nature of our economy to a modern diverse, resilient economy. We have to have a look at all that 'fundamental stuff' we've been happily ignoring for decades and decide what sort of world we'll create out of this mess. My opinion is it shouldn't be just an exact replica of the last, it should be one where we protect our planet, enjoy our houses for being houses, and I don't know, go back to working out how we can grow more potatoes for people. I think that's a blog for another day though.
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