Australian economy was slowing fast in March-quarter 2017 and outlook negative

Last week, we learned that private new capital expenditure had risen by 0.3 per cent in the March quarter but was still 9.3 per cent down on the March-quarter 2016 outcome. The forward-looking estimates for 2017-18 have also improved somewhat but still lies well below the expected outcome at the end of June 2017. So, perhaps the massive decline in private investment spending is abating somewhat. In the December-quarter 2016 National Accounts release, the ABS estimated that Today, the Australian Bureau of Statistics real GDP had risen by a strong 1.1 per cent which followed a negative 0.5 per cent outcome in the September-quarter 2016. The results were driven by strong household consumption growth (even as wages growth was negative), public investment and net exports (on the back of a massive shift upwards in the terms of trade). I said at the time that it was doubtful this was setting a new trend away from the sluggish growth that Australia had fallen into in recent years as a result of declining private investment and a government intent on austerity. And that assessment proved to be accurate when the ABS released the – March-quarter 2017 National Accounts data – today, which showed that real GDP had risen by just 0.3 per cent in the March-quarter 2017. Annual growth (last four quarters) was just 1.7 per cent around half the trend rate before the GFC. Net exports undermined growth by 0.7 percentage points, despite the improved terms of trade. Inventory accumulation added 0.4 percentage points, which indicates how unstable the growth profile was earlier in the year. Private and public consumption expenditure contributed 0.5 points, although the household saving ratio fell again indicating the tenuous nature of private consumption expenditure. Remember that the National Accounts are a rear-view mirror of where the economy was 3 months ago. But the overall trend is not terribly optimistic, especially with the government intent on cutting back its contribution to growth in the coming year.

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Australia’s minimum wage rises – but not sufficient to end working poverty

Today, the Australian Fair Work Commission (FWC), which is a judicial institution charged with setting minimum wages and conditions announced the outcome of their – Annual Wage Review – 2016-17. The FWC decided to lift the National Minimum wage by 3.3 per cent over the next year at a time when the inflation rate is running around 2.1 per cent. In other words, the lowest-paid workers are finally get a a much-needed real wage increase when other workers (on higher wages) are experiencing record low wages growth and real wage cuts. For years, the relatively between those on minimum wages and those on average earnings has been increasing as the low-paid have been forced to endure regular real wage cuts. In the last year or so that position has reversed as the non-minimum wage workers have been forced to endure record low wage increases and in recent quarters real wage cuts and the FWC has awarded modest real wage increases to the minimum wage workers. However, while today’s decision provides for some real wage growth for the lowest paid workers it is hardly anything to write homeabout, and, in the words of the FWC itself, not sufficient to lift the minimum wage workers who are experiencing working poverty out of that state. Life for low-wage workers in Australia is tough and would be much tougher if there were not enforced regulations to stop the capitalists from taking more and dishing out capricious treatment to the workers.

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Being lectured about the problem by those who created the problem

There are many examples of high profile players in the political arena trying to revise history and reinvent themselves to suit the new climate they are operating in. Tony Blair is a notable example in recent months where he sought to influence the upcoming British election by casting aspersions on the current Labour Party leadership. His past record is so abysmal that anyone in their right mind would just go away and stay silent. But this sort of person – the revisionist reinventers – have a thick hide and a sense of entitlement that most of us couldn’t imagine. I read an article in the American Prospect Magazine last week (June 1, 2017) – The Democrats’ ‘Working-Class Problem’ – written by Stanley B. Greenberg, an American pollster who “works with center-left political parties in the United States and abroad” and so claims to have insights into why people vote the way they do. This was a classic example of being lectured about a problem when the lecturer is himself part of the problem but, seemingly, fails to see that.

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The Weekend Quiz – June 3-4, 2017 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The Weekend Quiz – June 3-4, 2017

Welcome to The Weekend Quiz, which used to be known as the Saturday Quiz! The quiz tests whether you have been paying attention or not to the blogs I post. See how you go with the following questions. Your results are only known to you and no records are retained.

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A credit rating agency spinning its usual nonsense

There is a lot of talk among the economics journalists about the impending collapse of China, apparently drowning in mountains of unsustainable debt. Don’t hold your breath. The Chinese government fully understands its capacity as the monopoly issuer of its currency and demonstrated during the GFC how to effectively deploy that capacity. That doesn’t mean that the Chinese economy might record slower growth in the period ahead – but as Japan demonstrated in the 1990s after it experienced a massive property bubble burst – slower growth is not collapse. Appropriate use of fiscal policy can always prevent collapse if there is a will to do so. Further, Australia’s net foreign debt has risen significantly over the last few decades and now exceeds $A1 trillion. Most of it is non-government and the private banks have been at the forefront of the increase as they have been racking up loans from foreign wholesale funding markets. With China slowing, there is a possibility that the conditions for servicing these private loans may deteriorate. A chief of a credit rating agency (S&P) has been getting airplay in Australia the last few days claiming that this increased vulnerability arising from the foreign debt exposure requires the federal government to get into surplus as quickly as possible to provide it with the capacity to “absorb shocks” arising from a correction in the banking sector. His insights are nonsensical. Exactly the opposite is the case.

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A Basic Income Guarantee does not reduce poverty

Poverty arises for a number of reasons but a lack of income has to be a central characteristic of someone who is poor. And notwithstanding the increasing tendency for people who work full-time to be found earning wages that place them below the poverty line, the major reason for people having a lack of income is unemployment. That typically makes poverty a systemic event rather than an individual failure because mass unemployment is easy to understand – it occurs when the system fails to produce enough jobs to meet the desires for work by the available labour force. Then, to understand why the system fails in that way, we know that once the spending and saving decisions of the non-government sector are made, if there is still a spending shortfall in the economy, which generates the mass unemployment, then it has to be because the net spending position of the national government is short. That is, either the fiscal surplus is too large or (usually) the deficit is too small. In that sense, the introduction of a Job Guarantee would eliminate poverty arising from unemployment and the working poor because the Government could condition the minimum wage by where it set the Job Guarantee wage. If it truly desired to end poverty among those in employment then it would set the Job Guarantee accordingly. Others argue that a more direct way of dealing with poverty and lack of income is to just provide the income via a Basic Income Guarantee (BIG). The BIG idea has captured the progressive side of politics and many on the Right. It is another one of those sneaky neo-liberal ideas that look good on the surface but are rotten not far below. Supporters of BIG are really absolving currency-issuing governments of their responsibility to use their fiscal capacities to ensure there are sufficient jobs created – whether in the non-government or government sector. They are thus going along with the neo-liberal attack on the right to work. Moreover, closer analysis reveals that the introduction of the BIG would not, under current institutional arrangements reduce poverty at all.

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Britain’s labour market showing no Brexit anxiety yet

I have been keeping my eye on movements in the British data to see if there is any discernable effects yet of the June 2016 Brexit outcome. The latest investment data certainly doesn’t suggest anything is going on yet. The British Office of National Statistics (ONS) reported (May 25, 2017) – that total investment spending in real terms grew by 1.2 per cent in the March-quarter 2017 and over the 12 months by 2.2 per cent. Business investment was strong. This is investment in long-term productive infrastructure. It might be argued that this spending was already decided upon some time ago so the Brexit vote may not yet have impacted. We will see about that. The latest labour market data is also positive and that is what I have been looking at for a part of today.

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World Bankspeak – how to hide the failure of a mission!

As the title of my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – indicates, I am interested in both economics and patterned behaviour within groups and the way groups erect edifices (such as, denial) to defend positions. I am also interested in the way groups use language. In an upcoming edition of the Journal of Post Keynesian Economics, I have an article written with Dr Louisa Connors entitled – Framing Modern Monetary Theory, which discusses this topic. Framing and language is a tool that reinforces Groupthink and allows group (organisations) to engage in denial even though the facts convey a different message. A 2015 analysis of World Bank Annual Reports from 1946 to 2012 is illustrative of the way in which framing, grammar and word usage can be used to clothe reality. The analysis published by the Stanford Literary Lab – Bankspeak: The Language of World Bank Reports, 1946-2012 – documents the shift in language by the World Bank between the first two decades of Annual Reports to the second two decades. They show how the Bank shifts from a language that is readily understood and considers a concrete world and offers very little prescriptive input to a narrative that becomes so opaque and filled with financial buzz words that comprehension is lost. They document the emergence of what they refer to as “Bankspeak”. Groupthink requires a certain language to reinforce the increasingly unsustainable reality that the group lives within. That is the role of the World Bankspeak! The Literary Lab analysis is worth reading because it provides a coherent analysis of the way words and sentence structures (grammar) are manipulated to shift focus, allay concern and basically, undermine accountability mechanisms that were established to ensure an institutional mission was being faithfully pursued.

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The Weekend Quiz – May 27-28, 2017 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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